SAS (Vic) Pty Ltd v Urban Ecological Systems Ltd
[2021] VCC 31
•29 January 2021
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
EXPEDITED LIST
Case No. CI-20-01357
| SAS (VIC) PTY LTD (ACN 606 188 541) | Plaintiff |
| v | |
| URBAN ECOLOGICAL SYSTEMS LTD (ACN 113 695 837) | Defendant |
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| JUDGE: | HIS HONOUR JUDGE COSGRAVE |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 21,22 and 25 September |
| DATE OF JUDGMENT: | 29 January 2021 |
| CASE MAY BE CITED AS: | SAS (Vic) Pty Ltd v Urban Ecological Systems Ltd |
| MEDIUM NEUTRAL CITATION: | [2021] VCC 31 |
REASONS FOR JUDGMENT
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Subject: CONTRACT
Catchwords: Construction of contract – Breach of contract – IP licence agreement – Agreement to agree
CasesCited: Apple and Pear Australia Ltd v Pink Lady America LLC (2016) 343 ALR 112; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151; Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; Masters v Cameron (1954) 91 CLR 353; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; Nurisvan Investment Ltd v Anyoption Holdings Pty Ltd [2017] VSCA 141; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
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| APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr D.F. McAloon | B2B Lawyers |
For the Defendant | Ms S.C.B. Brenker | Holding Redlich |
COUNTY COURT OF VICTORIA
250 William Street, Melbourne
HIS HONOUR:
Summary
1This case concerns the rights and obligations of the plaintiff (“SAS”) under an agreement made with the defendant (“UESL”). The main question is whether SAS has satisfied certain terms of the agreement whereby UESL is obliged to grant specific rights to SAS in the form of a long term licence agreement in respect of Australia.
Background
2UESL owns certain patents and intellectual property rights in relation to “Blue Farm Technology”. This is an aquaponic food production system by which organic vegetables and fish are grown in a glasshouse at the same time. The fish are developed in a fish tank which is located beneath where the vegetables grow. Through special biotechnology processes, the waste produced by the fish is transformed into nutrients which are then used to fertilise the vegetables.
3The founders of UESL began developing the Blue Farm Technology in about 2001. After further research and development, the founders built prototypes of the technology resulting in the construction of a facility at Nimbin in 2005.
4UESL was founded in 2008.
5In 2010, UESL and an investor, Steelco Developments Pty Ltd (“Steelco”), established a joint venture called Urban Ecological Systems Australia Pty Ltd. This entity later changed its name to Green Camel Pty Ltd (“Green Camel”).
6On about 2 July 2010, UESL and Green Camel entered into an intellectual property licence agreement. The agreement granted Green Camel the exclusive right to exploit the UESL food production systems and any plant or animal produce harvested from it within Australia (with the exception of
Christmas Island) and Europe for the specified purpose – that is, to exploit, commercialise, manufacture, use, refine, develop, enhance, market and sell the patent, the food production system, the produce and the related intellectual property rights. Green Camel obtained these rights for $1. There was no obligation to pay UESL any royalty, presumably because Green Camel faced the risk and expense of making the technology work well on a commercial scale. The term of the licence was 100 years. UESL retained all rights to use and exploit the technology elsewhere in the world.
7After 2010, Green Camel began developing the Blue Farm Technology at a facility located at Cobbity in New South Wales.
8The principals of SAS are Ben Meadows and Oliver Draganovic. Meadows worked for 12 years with Costa Group in a variety of roles. His final task was building a $168 million tomato glasshouse. After roles at Lamana Group and Fresh Product Group, in about December 2012, Meadows established Edison Aqua with his business partner, Draganovic. The aim was to exploit the potential of organic food in Australia. The business has plant, materials and growers all over Australia and it licenses different varieties of product to Woolworths and Coles supermarkets.
9Meadows split off SAS from Edison Aqua to focus on the particular opportunity to use Blue Farm Technology to build organically certified glasshouse farms.
10Meadows and Draganovic had experience in marketing produce and in dealing with the major supermarket chains. Green Camel engaged them through Edison Aqua in 2011 to assist with the sale and marketing of produce from the Cobbity facility. The aim was to have some arrangements in place when the facility commenced commercial production.
11By 2012, there was friction in the relationship between UESL and Steelco. In
November 2012, representatives of the two companies signed an agreement about how the board of Green Camel would be configured and the number of seats each company would have on the board. However, the agreement was of limited utility because Steelco reneged on its commitments. It called a shareholders’ meeting and effectively took from UESL the board seats previously allocated to it. Though UESL remains a shareholder in Green Camel, it is excluded from access to the Cobbity facility and it is largely shut out of Green Camel and its activities. Steelco and UESL are currently involved in a proceeding in the New South Wales Supreme Court.
12Before 2015, Edison Aqua procured a supply contract for Green Camel with Coles Supermarkets. However, there were problems with the reliable supply of quality produce by Green Camel. Edison Aqua was unable to persuade Green Camel to accept its constructive criticism and respond accordingly. In 2015, Edison Aqua novated its agreement with Coles and thereafter conducted no further business with Green Camel.
13As a result of discussions between Andrew Bodlovich (“Bodlovich”), a representative of UESL and Meadows, a representative of SAS, SAS agreed in about August 2015 to invest $100,000 by funding legal fees incurred by UESL in connection with its dispute with Green Camel. Thereafter, Meadows and/or Draganovic negotiated an agreement between UESL and SAS. In large part it was directed to the promotion and development of UESL’s technology which, in turn, was dependent upon the resolution of UESL’s dispute with Green Camel. The latter had to occur before there could be a successful rollout of the technology.
14Green Camel was a major obstacle which had to be removed. There were different possible ways to achieve this: UESL could obtain control of the Green Camel board of directors; another investor might take control of Green Camel; the Green Camel Licence could be terminated. SAS was keen to
support UESL and promote its technology.
15SAS sought legal advice from solicitors Coulter Roache in relation to UESL’s dispute with Green Camel. The advice concerned various contracts and the strength of UESL’s argument against Green Camel. Had the advice been that UESL had no argument, or only a weak argument, against Green Camel, there would have been no point in SAS trying to move forward with UESL and no deal between them would have proceeded.
16After getting the legal advice from Coulter Roache, Edison, Meadows and Draganovic entered into a formal agreement with UESL (“the 2016 agreement”). The background to the 2016 agreement was set out in the recitals as follows:
“A. UESL is a shareholder in Green Camel. UESL has a right to representation on the board of Green Camel, and may seek to exercise its rights to control the board of Green Camel in accordance with the Letter Agreement, with an aim to return Green Camel to a sound commercial footing and prevent continued wastage of funds.
B.Alternatively or additionally, a change of ownership of Green Camel would achieve the same objective. Edison Aqua and UESL have reached agreement as to the manner in which Edison Aqua will undertake certain activities related to the ongoing commercial viability of Green Camel. As consideration for the funds and activities, Edison Aqua will be granted shares in UESL if certain Milestones are met.
C.The Parties wish to record their agreement in writing.”
17In June 2017, UESL, SAS, Meadows and Draganovic entered into the UESL Agreement (“the Principal Agreement”).1 This was similar to the 2016 agreement but there were some differences. First, although Meadows and Draganovic continued to represent their interests, the chosen vehicle was no longer Edison but SAS. Meadows and Draganovic were not directors of this company but their wives were. Secondly, the agreement provided a parallel New Zealand component whereby Meadows and Draganovic could pursue
The Principal Agreement had the relevantly same recitals as the 2016 agreement.
commercial opportunities for the Blue Farm Technology in that country unimpeded by concerns about the role and conduct of Green Camel. Green Camel was irrelevant in this context because it was not authorised to exercise any rights in connection with UESL’s technology in New Zealand. The terms and effect of the Principal Agreement are of major significance in this case.
18In 2018, the parties agreed to amend the Principal Agreement. The amendments clarified Milestone 3 and extended the completion dates for Milestones 2 and 3 until 9 May 2021.
19By letter dated 7 February 2019, SAS wrote to UESL raising a number of issues. In substance, SAS claimed that Milestones 2 and 3 in the Principal Agreement had been achieved and it was time for UESL to change the interim licence held by SAS into a full licence. This was said to entail the termination of Green Camel’s licence from UESL.
20Bodlovich responded by email on 18 February 2019. He made several points:
· he asserted that the purpose of the agreement between UESL and SAS was for the latter to introduce a suitable investor in a way which successfully resolved the Green Camel dispute and created a viable future path for the Blue Farm Technology in Australia;
· he said that UESL had to retain the discretion to decide when Green Camel’s licence would be terminated in a safe and commercially sensible manner;
· he denied that SAS had satisfied the conditions for the conversion of its interim licence into a full licence; and
· UESL was happy to amend the agreement between them in ways which would help strengthen and protect the rights of SAS – but not in such a way that exposed UESL to risk.
21On 9 July 2019, UESL and SAS entered into an unconditional intellectual property licence agreement in relation to New Zealand. The agreement licensed SAS to use and exploit in New Zealand, for a term of 100 years, UESL’s patented and intellectual property rights in connection with its aquaponic food production system.
22On about 19 July 2019, SAS advised UESL that it had appointed SAS (NZ) Limited (“SAS (NZ)”) as its non-exclusive sub-licensee to market and sell the aquaponic food production system and associated products in New Zealand and had entered into an intellectual property sub-licence agreement with the sub-licensee. Under the terms of the New Zealand sub-licence, SAS (NZ) paid SAS a one-off sub-licence fee of $5,000 and a further $5,000 as an advance royalty payment.
23SAS advised that, on 19 July 2019, it deposited $5,001 into UESL’s bank account. The money comprised:
· $2500, which was 50% of the one-off payment payable by SAS, UESL under clause 8(d) of the Principal Agreement;
· $2500, which was 50% of the advance royalty payment payable by SAS to UESL under clause 8(f) of the Principal Agreement; and
· $1, which was a pre-payment of the fee payable by SAS to UESL for the licence agreement as defined in clause 2(d) of the Principal Agreement.
24By letter dated 20 August 2019, Bruno Del Re, a commercial consultant to SAS, wrote to the directors of UESL asserting that it had satisfied Milestone 2 of the Principal Agreement by transferring 50% of the royalty payment which SAS received from SAS (NZ) into the bank account of UESL. SAS reserved its right to require UESL to terminate the current licence agreement with Green Camel and to award that licence to SAS.
25Del Re sent a follow up letter in late October 2019 seeking a response to his earlier letter. By email dated 20 December 2019 from Bodlovich to Meadows and Draganovic, Bodlovich:
· advised that UESL had informed Green Camel in writing that it accepted Green Camel’s repudiation of the intellectual property licence agreement between Green Camel and UESL made in July 2010;
· noted that Green Camel had not acknowledged this letter and thus, it might claim that the agreement remained on foot and/or allege that UESL had unlawfully terminated the agreement and thereby repudiated it;
· proposed that USEL and SAS should collaborate to draft, negotiate and execute a licence agreement as soon as possible. Such an agreement would include performance criteria requiring SAS to build and commission within three years of obtaining a full licence a Blue Farm in Australia at least one hectare is size; alternatively, the performance criteria would be deemed satisfied upon a merger of UESL and Green Camel; and
· advised that UESL consented to SAS beginning discussions with interested parties in Australia about the utilisation of the Blue Farm Technology in Australia.
26By an email dated 13 January 2020 from UESL’s chairman, Dale Nott, to Panagiota Draganovic, a director of SAS, Nott stated that UESL had repeatedly refuted any assertion by SAS that it had achieved Milestone 2 or 3 of the Principal Agreement. He said that, in circumstances where SAS had not responded to the offer in the email from Bodlovich dated 20 December 2019, UESL now withdrew the offer.
Legal Principles
27The High Court has over some time grappled with the question of construing commercial contracts. The court has produced a series of decisions dealing with the issue.2 Many of the general principles have been set out in more recent authority on the point. An ongoing source of controversy is the regard which can properly be had to surrounding circumstances when interpreting a contract.
28The principles have been usefully summarised in several High Court cases commanding the assent of differently constituted courts.
29In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd,3 Gleeson CJ, Gummow, Hayne,
Callinan and Heydon JJ said:4
“This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction).”5
30French CJ, Hayne, Crennan and Kiefel JJ in Electricity Generation Corporation v Woodside Energy Ltd6said:7
See for example: McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640.
(2004) 219 CLR 165.
Ibid at [40].
The court referred to its earlier judgment in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22].
(2014) 251 CLR 640.
Ibid at [35].
“Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean). That approach is not unfamiliar (59). As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract (60). Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating” (61). As Arden LJ observed in Re Golden Key Ltd (62), unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience.”
31Finally, in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd,8 French CJ, Nettle and Gordon JJ said:9
“The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are
(2015) 256 CLR 104.
Ibid at [46].- [52] footnotes omitted
known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.
Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties … intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.
These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority (NSW) and Electricity Generation Corporation v Woodside Energy Ltd. We agree with the observations of Kiefel and Keane JJ with respect to Western Export Services Inc v Jireh International Pty Ltd.”
32In addition, the Victorian Court of Appeal in Apple and Pear Australia Ltd v Pink Lady America LLC10 examined the relevant principles at some length. Ferguson and McLeish JJA, who agreed with the decision of Tate JA, noted that:11
· there was no doubt that when seeking to ascertain the meaning of contractual language, it was appropriate to resort to the context in which the language was used;
· it was apparent from the decision in Mount Bruce that the circumstances which the contract addressed, and the commercial purpose to be secured by it, were ordinarily able to be identified by reference to the contract alone; and
· at least where the contractual language was ambiguous or susceptible of more than one meaning, evidence of circumstances or events external to the contract was permissible.
(2016) 343 ALR 112.
Ibid at [229] – [231].
Issues
33The principal issues which arise for determination in the present case are as follows:
(a) Did SAS achieve Milestone 2 in July 2019?
(b) If SAS did so, was the interim licence granted to SAS converted into a full licence by operation of clause 2(d) of the Principal Agreement?
(c) Is SAS entitled to an order that UESL enter into a full licence agreement with it?
Did SAS achieve Milestone 2 in July 2019?
34The answer to the first issue will be determined by the Principal Agreement. The background to the Principal Agreement, as set out in the recitals, is the same as that in the 2016 agreement, except that SAS was substituted for Edison. From the outset, the agreement indicates that UESL has certain rights in connection with Green Camel, and it may seek to control the board of that company with the aim of returning the company to a sound commercial footing and preventing the continued wastage of funds. The same outcome could be achieved by changing the ownership of Green Camel. The parties agreed that:
· SAS would undertake certain activities regarding the ongoing commercial viability of Green Camel; and
· in consideration of SAS providing funds and undertaking the contemplated activities, SAS would receive shares in UESL if certain milestones were met.
35The definition section of the Principal Agreement contained references to important terms.
36The “Current Licence Agreement” was the licence agreement between UESL and Green Camel dated 2 July 2010 (clause 1.1(f)).
37“Dispute” meant the alleged breach of the Current Licence Agreement and/or Letter Agreement (clause 1.1(g)).
38“Interim Licence” meant the licence granted pursuant to clause 2(a) of the Principal Agreement (clause 1.1(i)).
39“Investor” means the parties obtained pursuant to Clause 4 of this Agreement (clause 1.1(j)).
40“Licence” meant the licence granted by UESL to SAS pursuant to the provisions of the Licence Agreement for the Australian Territory (clause 1.1(l)).
41“Letter Agreement” meant the agreement between UESL and Steelco Developments Pty Ltd dated 30 November 2012 (clause 1.1(m)).
42“Licence Agreement” meant the licence agreement to be entered into between UESL and SAS, the terms of which would be mutually agreed based upon the terms of the Current Licence Agreement with additional provisions, including without limitation, Access Rights, Marketing Rights, IP Rights and Performance Criteria (clause 1.1(n)).
43“Milestones” meant the milestones set out in Appendix 1 of the Principal Agreement (clause 1.1(r)).
44“Royalties” meant a percentage of gross revenue as agreed between the Investor (or Unconditional Licensee) and SAS calculated in respect of the ongoing use and production in conjunction with the granting of the Licence (or Unconditional Licence) (clause 1.1(u)).
45Clause 2 of the Principal Agreement related to UESL granting an interim
licence to SAS within Australia and the possible conversion of that licence into a full licence.
46Under clause 4 of the Principal Agreement, it was the responsibility of SAS to locate and retain an investor to take control of, and/or purchase a controlling interest in, Green Camel on or before 30 December 2018. As consideration for SAS finding and retaining such an investor to assume control of Green Camel, SAS would receive 15 million shares in UESL within 14 days of the completion date of the purchase of the controlling interest (clause 4(a)). The parties agreed that UESL would not before 30 December 2018 enter into any negotiations with a third party investor. When finding and retaining the investor to take control of Green Camel, SAS was to assign the Licence Agreement to the investor for the licence fee.12 SAS would retain the whole of the licence fee. The investor would derive income from the Licence Agreement and would pay royalties to SAS from this income. SAS would, in turn, remit part of the royalties paid by the investor to UESL in accordance with clause 5(a)(i) of the Principal Agreement.
47Clause 5 of the Principal Agreement dealt with royalty payments both in relation to Australia and New Zealand.
48The Principal Agreement in clause 6 provided for the solicitors Coulter Roache, at the sole expense of SAS, to conduct a legal review of the dispute about the alleged breach by Green Camel of the Current Licence Agreement and/or Letter Agreement.
49Pursuant to clause 7 of the Principal Agreement, the parties agreed that the milestones in Appendix 1 to the Principal Agreement bound them. If a Milestone were met earlier than the nominated date, then the share transfer was to occur within 30 days of the Milestone being achieved. If Milestones 2
Licence fee was defined in clause 1.1(o) of the Principal Agreement as the agreed amount paid by the investor to SAS to secure the licence.
or 3 were not achieved by the agreed date, the parties would discuss in good faith whether the deadline should be extended.
50Clause 8 of the Principal Agreement concerned the Unconditional Licence.13 This was the licence to use the Blue Farm Technology and ancillary patents, trade secrets and other innovations in New Zealand for a period of 100 years from the Unconditional Licence Date14 – that is, the date of the Principal Agreement. The Unconditional Licensee15 was the person to whom SAS granted the Unconditional Licence for New Zealand. The Unconditional One- Off payment was defined16 as the payment from the Unconditional Licensee to SAS for the Unconditional Licence. The amount of the payment was to be agreed between SAS and the Licensee. Under clause 8(a) of the Principal Agreement, UESL granted SAS the Unconditional Licence for the sum of $1. Within 3 months of the Unconditional Licence Date, the parties were to reach an agreement about the terms of the Unconditional Licence and to draft a written document to formalise the terms. The grant of the Unconditional Licence was not dependent upon the Milestones.
51Upon receipt of the Unconditional Licence, SAS was, as soon as possible, to assign the same to the Unconditional Licensee who would pay the Unconditional Licensee One-Off Payment for the licence. SAS and UESL would share that payment equally. The Unconditional Licensee would derive income from the use of the Unconditional Licence. It would pay Royalties to SAS from this income in an amount to be agreed from time to time between itself and SAS. SAS was to share these Royalties equally with UESL until SAS acquired the Licence in accordance with clause 2 of the Principal Agreement.
52The Milestones appear in Appendix 1. Milestone 1 concerned: the legal review
This term was defined in clause 1.1(v) of the Principal Agreement.
This term was defined in clause 1.1(w) of the Principal Agreement.
This term was defined in clause 1.1(x) of the Principal Agreement.
This term was defined in clause 1.1(y) of the Principal Agreement.
by Coulter Roache; SAS paying UESL $100,000; and Meadows and Draganovic joining the UESL board. There was no dispute between the parties that Milestone 1 was satisfied.
53Milestone 2 concerned the payment of Royalties contemplated in clause 5 of the Principal Agreement. There was to be confirmation of cleared funds received into the UESL bank account by a nominated date.
54Milestone 3 concerned the introduction of a new investor. This required the completion of a sale or change of control of Green Camel including confirmation of cleared funds in the UESL bank account. Alternatively, there could be entry into a binding memorandum of understanding or non-disclosure agreement for the purpose of purchasing Green Camel or a controlling interest in it.
55Milestone 4 was UESL terminating the Current Licence Agreement with Green Camel. This was to occur within 14 days of SAS satisfying Milestone 2 or 3.
56The appendix to the Principal Agreement provided that Milestones 2 and 3 would be interpreted flexibly and in good faith by the parties. The underlying intent of the Milestones was expressed to be that UESL and SAS work together to remove the impediments to the business and set the business on a successful path in Australia and Europe. This could involve a change in control of Green Camel, a change in ownership of Green Camel or a combination of the two. The aim was to change the relationship between Green Camel and UESL so that Green Camel was no longer an obstacle to the development of UESL’s Blue Farm Technology business.
Plaintiff’s argument
57SAS contended that it was entitled to have a licence agreement to use the UESL aquaponic food production system because it had satisfied both clauses 2(b) and (d) of the Principal Agreement.
58Clause 2 of the Principal Agreement is in the following terms:
(a) Subject to achievement of Milestone 1, UESL agrees to grant SAS an interim Licence for the Australian Territory currently granted to Green Camel with such Licence to commence on the Licence Commencement Date and to continue as an interim licence for a period of thirty six (36) months from the Licence Commencement Date.
(b) The Interim Licence for a term of thirty six (36) months from the Licence Commencement Date will be converted to a full licence upon SAS achieving one or both of Milestones 2 and 3.
(c) Within fourteen (14) days of SAS satisfying either Milestone 2 or 3, UESL acknowledges and agrees to terminate the Current Licence Agreement with Green Camel (UESA as noted in the Current Licence Agreement) in accordance with Milestone 4.
(d) Subject to Clause 2(a), UESL will grant the Licence to SAS upon the termination of the Current Licence Agreement. The fee payable by SAS to UESL for the Licence Agreement will be the sum of $1.00.
59Milestone 2, as noted above, related to royalties. Clause 5 of the agreement, which is also applicable to royalties, provides as follows:
(a) The Royalties paid are as follows:
(i)One-sixth (1/6) of the Royalties paid to SAS from the Investor in respect of the Licence Agreement pursuant to Clause 4(d); plus
(ii)One-sixth (1/6) of the Royalties paid to SAS from the Unconditional Licensee in respect of the Unconditional Licence pursuant to Clause 8.
(b) Subject to Clause 8(f) the Royalties will be paid to UESL for the term of the Licence Agreement and Unconditional Licence respectively.
(c) In consideration of SAS paying one-sixth (1/6) of the Royalties to UESL in respect of the Licence Agreement, UESL will transfer fifteen million (15,000,000) shares in UESL to SAS or SAS's nominee, such shares to be transferred within fourteen (14) days of the date of payment of the first Royalties payment from SAS to UESL.
(d) Payment of Royalties from SAS to UESL in accordance with Clause 5(a)(i) will be quarterly in arrears, with the first payment to commence within fourteen
(14) days of receipt by SAS of the first Royalties payment from the Investor and quarterly thereafter unless otherwise mutually agreed by the parties.
60Clause 5(a)(i) refers to royalties paid to SAS from the investor in relation to the Licence Agreement pursuant clause 4(d). These are royalties generated in relation to Australia. No such royalties have yet become payable, there being no investor who has assumed control of Green Camel and no Licence
Agreement.
61Clause 5(a)(ii) speaks of royalties paid to SAS from the Unconditional Licensee in New Zealand in relation to the Unconditional Licence granted in accordance with clause 8 of the Principal Agreement. UESL granted the licence over New Zealand to SAS when UESL and SAS entered into the Principal Agreement. The licence was unconditional insofar as its grant was not dependent upon the meeting of any Milestone or other pre-condition.
62The royalty payment between SAS as the licensee and SAS (NZ) as the sub- licensee was referred to explicitly in the Sub-licence Agreement between them dated 29 July 2019. This agreement was executed by Jean Meadows and Panagiota Draganovic on behalf of both parties because those women were the directors of both companies. Under the Sub-licence Agreement, SAS granted SAS (NZ) a non-exclusive and revocable sub-licence to use and exploit the Blue Farm Technology and food production system developed by UESL within New Zealand, subject to the terms and condition set out in the agreement.
63Under clause 4.1 of the Sub-licence Agreement, SAS (NZ) had to pay SAS the sub-licence fee and, subject to clause 4.2, a royalty calculated at the Royalty Rate (as defined) monthly in arrears before the 15th day of each month. The Royalty Rate was defined as “4% of the net revenue of the sub- licensee derived from the use of the sub-licence or any other rate as agreed between the parties in writing from time to time”.
64Clause 4.2 stipulated that the sub-licensee was to pay SAS an Advance Royalty Amount on the date of the Sub-licence Agreement. The amount was defined as $5,000 (clause 1.1). It was said that the parties acknowledged the payment was made by way of pre-payment of any royalty payable under clause 4.1(b) and would be set-off against any amount of royalty payable by SAS (NZ) to SAS after the date of the Sub-licence Agreement.
65SAS contended that it satisfied Milestone 2 because, before the end of July 2019 (which was before 9 May 2021), it had paid into UESL’s bank account 50% of both the Unconditional Licensee One-Off Payment and the Advance Royalty Payment. Moreover, UESL admitted receipt of the funds and acknowledged at court that it still retained them.
66The essence of the SAS argument was that, for the purposes of considering the payment of royalties in determining whether Milestone 2 was satisfied, the definition of “Royalties” should be read broadly. Because the definition was disjunctive in referring to “a percentage of gross revenue as agreed between the investor (or Unconditional Licensee) and SAS calculated in respect of the ongoing use and production in conjunction with the granting of the Licence (or Unconditional Licence)” (my emphasis) SAS submitted that the payment of royalties arising from the New Zealand Unconditional Licence could have the same triggering effect as if they were royalties paid by the investor under the agreement in respect of the Australian territory.
67SAS argued that its construction of the Principal Agreement was consistent with its terms and accurately reflected the parties’ intention. SAS said that UESL’s position that only royalties from Australia would satisfy Milestone 2 ignored the clear words of the Principal Agreement and relied upon an imprecise characterisation of the underlying intent or purpose of the Principal Agreement. This intent or purpose was said to arise from the subjective view of Bodlovich.
Defendant’s argument
68UESL submitted that Milestone 2 could be achieved only through the payment of royalties arising from the employment and operation of its aquaponic food production system in Australia. UESL argued that clause 5 and the definition of “Royalties” in clause 1.1(u) of the Principal Agreement should be read so as to give effect simultaneously to parallel licensing arrangements, one in
Australia and one in New Zealand.
69Thus, in respect of the Australian territory UESL contended that:
(a)“Royalties” means a percentage of gross revenue as agreed between the “Investor” and SAS calculated in respect of the ongoing use and production in conjunction with the granting of the Licence [clause 1.1(u)];
(b)the “Investor” will derive income from the use of the Licence Agreement, and from this income, the Investor will pay the Royalties to SAS [clause 4(d)];
(c)one-sixth (1/6) of Royalties paid to SAS from the Investor will be on-paid to UESL [clause 5(a)(i) read with clause 4(d)];
(d)that proportion of Royalties will be paid to UESL for the term of the Licence Agreement, quarterly in arrears [clauses 5(b) and (d)]; and
(e)in consideration of SAS paying one-sixth (1/6) of the Royalties to UESL in respect of the Licence Agreement, UESL will transfer 15,000,000 shares in UESL to SAS (or its nominee) within 14 days of the date of payment of the first Royalties payment from SAS to UESL [clause 5(c) read with Appendix 1, Item 2].
70With regard to the New Zealand territory, UESL submitted that:
(a)“Royalties” means a percentage of gross revenue as agreed between the Unconditional Licensee and SAS calculated in respect of the ongoing use and production in conjunction with the granting of the Unconditional Licence [clause 1.1(u) reading the text in brackets];
(b)the Unconditional Licensee will derive income from the use of the Unconditional Licence, and from this income, the Unconditional Licensee will pay Royalties to SAS in an amount as agreed between SAS and the
Unconditional Licensee from time to time [clause 8(e)];
(c)SAS will share the Royalties specified in clause 8(e) with UESL equally until SAS acquires the (Australian) Licence [clause 8(f)];
(d)upon SAS being granted the (Australian) Licence, the proportion of Royalties paid to UESL from SAS will be reduced and paid in accordance with Clause 5(a)(ii) and Clause 5(d) [clause 5(f)]; and
(e)the Royalties will be paid to UESL for the term of the Unconditional Licence, which is 100 years [clauses 5(b) and 8(a)].
71UESL’s main point was that, in relation to the utilisation of the Blue Farm Technology in Australia and New Zealand, the definition of “Royalties” contemplated that they arise ultimately from “ongoing use and production” in conjunction with the respective licences for the two countries.
72I note in passing that UESL sought to rely upon some evidence from Bodlovich about the undefined term “production”. SAS objected to the evidence. I consider the objection should be upheld. First, I am not satisfied that the Bodlovich’s opinion of the meaning of the word is admissible. Secondly, even if the meaning of the word were properly the subject of opinion evidence, UESL failed to give due notice of the expert evidence to SAS. This was contrary to the court’s rules. Further, if so advised, SAS might have sought to proffer different expert opinion.
Consideration
73In my opinion, the UESL construction of the Principal Agreement represents the better view. A reasonable business person, having considered the language used by the parties in the Principal Agreement, the circumstances addressed by the Principal Agreement and the commercial purpose or object to be secured by it, would conclude that the Principal Agreement:
(a) confirmed the existence of a problem with the commercial viability of Green Camel;
(b) set out the shares and licence benefits which would flow to SAS if it undertook various activities in connection with Green Camel and met particular milestones such as making royalty payments and introducing a new investor;
(c) granted SAS a separate unconditional licence to use the patented UESL aquaponic food production system in New Zealand; and
(d) required SAS to assign the New Zealand licence to a sub-licensee in order to earn royalties which were to be divided between SAS and UESL.
In considering the scope and effect of the Principal Agreement, I have paid no regard to the subjective views of any witness. Rather, I have relied upon the Principal Agreement itself.
74It appears from the text of the agreement that:
(a)there is a commercial problem with Green Camel; and
(b)the parties have agreed that SAS will obtain a potentially beneficial licence together with shares in UESL if it can assist with the resolution of the problem.
One means of overcoming the Green Camel problem is to locate and retain an investor who takes a controlling interest in Green Camel. The investor would replace Steelco as the entity in control of Green Camel. Provided SAS can assist UESL by resolving the problem presented by Green Camel, then SAS can win the licence to exploit the Blue Farm Technology in Australia. SAS can achieve this objective by satisfying Milestone 2 or 3. If SAS can effect a beneficial change in the relationship between Green Camel and UESL
such that Green Camel is no longer an impediment to UESL developing its business in Australia and elsewhere, that would constitute a resolution of the Green Camel problem. In that case, SAS would obtain the right to exploit the Blue Farm Technology in Australia and would pay royalties to UESL.
75A plain reading of the “Royalties” definition in the context of the Principal Agreement as a whole reflects that the one agreement seeks to address aspects of the licence situation in both Australia and New Zealand.
76The definition provides that royalties reflect a percentage of gross revenue from ongoing use and production in conjunction with the grant of a licence to use the aquaponic food production technology. This means that the party paying royalties:
· has the requisite licence from SAS and/or UESL;
· has utilised the licence and is engaged in ongoing use and food production;
· has earned revenue from using the UESL technology to produce food; and
· has paid, or is to pay, royalty income from that revenue.
77This approach is confirmed by clause 4 of the Principal Agreement. This clause addresses how an investor who takes control of Green Camel can then obtain a licence and exploit it to generate revenue and pay.
78In the present case, SAS has only an interim licence in Australia. It cannot exploit the Blue Farm Technology so as to generate an income from which it could make royalty payments.
79In New Zealand, neither SAS nor its related entity SAS (NZ) has constructed any farms using Blue Farm Technology. Because there are no farms in New
Zealand, neither SAS nor SAS (NZ) has generated any revenue from using the Blue Farm Technology to produce food. In effect, all that has happened is that SAS has established a related company in New Zealand and arranged the transfer of funds from one entity to the other. Hence, even though SAS (NZ) has purported to make a royalty payment to SAS (which the latter then shared with UESL), the payment was artificial or contrived in that it did not emanate revenue generated as a result of producing food from using the Blue Farm Technology.
80If SAS is correct to interpret the Principal Agreement in the manner it contends for, then it is (arguably) entitled to a full licence from UESL even though:
(a) the problem with Green Camel is continuing and there remains ongoing litigation in the New South Wales Supreme Court between Green Camel and UESL;
(b) neither SAS nor any related company is actually using the Blue Farm Technology to produce food in Australia (or New Zealand); and
(c) UESL would not receive any ongoing benefit in the form of royalties which arose from the implementation and operation of its aquaponic food production system.
I regard this outcome as working a commercial nonsense. The Principal Agreement should not be construed in a way which gives rise to this result.
81I consider that Milestones 2 and 3 were specified in such a way that, when either was satisfied, it signified the end of the problem with Green Camel. Either SAS found an investor who took control of Green Camel or, through another means, UESL received royalties from the ongoing use of the its aquaponic food system and the production generated therefrom. The former directly removed the Steelco influence on Green Camel from the challenges
which UESL faced. The latter could not occur without the resolution of the dispute with Green Camel. Whichever option was realised, the outcome was that UESL was now positioned to work with SAS to make full use of its expertise and industry connections and to reward SAS for its assistance in removing a major stumbling block to the future development and expansion of the Blue Farm Technology in Australia and overseas.
82I note that a criticism which SAS made of UESL’s position on this point was that Milestone 2 could not be achieved without SAS having first achieved Milestone 3. It argued that this was inconsistent with the terms of the Principal Agreement which require SAS to achieve only one of Milestones 2 or 3. While I agree that clause 2(b) of the Principal Agreement contains disjunctive terms, my view is that the proposed SAS interpretation results in greater inconsistency with the objects of the Principal Agreement as disclosed by its terms than the alleged problem with the Milestones. Even if the SAS criticism is correct, I prefer the UESL interpretation of the Principal Agreement.
Is SAS entitled to a licence due to clause 2(d) of the Principal Agreement?
83When opening its case, SAS made reference to there being two bases upon which it was entitled to a licence under the Principal Agreement for the territory of Australia.
84The first arose through clause 2(b) of the Principal Agreement due to the satisfaction of Milestone 2. I have addressed that claim above.
85The second arose through clause 2(d) which is in the following terms:
“Subject to clause 2(a), UESL will grant the Licence to SAS upon the termination of the Current Licence Agreement. The fee payable by SAS to UESL for the Licence Agreement will be the sum of $1.00.”
SAS contended that, in December 2019 after Milestone 1 had been satisfied, UESL terminated the Current Licence Agreement with Green Camel. SAS argued that Bodlovich, in his email of 20 December 2019, advised SAS that:
· UESL had notified Green Camel in writing that it accepted its repudiation of the licence agreement entered between UESL and Green Camel in July 2010;
· UESL considered the licence agreement to be terminated;
· UESL considered the notification to Green Camel constituted the achievement of Milestone 4 and the email was the completion criteria for Milestone 4;
· UESL and SAS should collaborate to draft, negotiate and execute a licence agreement (as defined in the Principal Agreement) as soon as possible; and
· UESL consented to SAS commencing discussions with interested parties in Australia regarding the utilisation of the Blue Farm Technology in Australia.
86The email from Bodlovich made no reference to satisfying Milestone 2. This was said to be consistent with treating clause 2(d) as a separate source of obligation upon UESL to grant SAS a licence.
87SAS said that the termination of the Green Camel Licence removed any legal or commercial impediment to SAS having a full licence within Australia.
88UESL objected to this aspect of SAS’s case on the basis that it was not pleaded and so the court should not deal with it.
89I reject UESL’s argument. Clause 2(d) of the Principal Agreement is referred to expressly in the statement of claim and, when opening his case, counsel for SAS explained the claim which relied upon clause 2(d). There was no objection at the time by UESL to this claim being raised. In the circumstances, I do not consider that UESL was placed in any relevant disadvantage in having to address this aspect of the SAS case. If there were truly an issue,
UESL should have raised it before final address. In any event, because this claim concerned more a construction point and there was no dispute about the underlying evidence, it is difficult to see what prejudice UESL could have suffered.
90Apart from raising a threshold objection, UESL also addressed the substance of the SAS argument.
91UESL submitted that clause 2(d) did not have the effect for which SAS contended. UESL argued that Milestone 4 simply required as a matter of timing that the Current Licence Agreement must be terminated within 14 days of SAS satisfying Milestone 2 or 3. UESL said that Milestone 4 did not specifically advance the purpose of the Principal Agreement – namely, the resolution of the impediments to the Blue Farm business in Australia and Europe caused by the ongoing dispute between UESL and Green Camel – but was consistent with it. The effect was that once the purpose was achieved and the dispute with Green Camel resolved, UESL could proceed to terminate the agreement with Green Camel.
92UESL argued that clause 2 of the Principal Agreement must be read as a whole and it was incorrect to focus simply upon clause 2(d) in isolation. UESL contended that the various parts of clause 2 worked together harmoniously when correctly construed. Its argument ran as follows:
· subject to Milestone 1 (which all parties acknowledged was satisfied), UESL granted SAS an interim licence for Australia for a period of 36 months from around September 2018;
· the interim licence of 36 months would be converted to a full licence upon SAS achieving one or both of Milestones 2 and 3. A full licence is a reference to the licence in clause 2(d);
· SAS is to satisfy Milestone 2 or 3. This referred back to clause 2(b);
and
· clause 2(d) is subject to clause 2(a). Clause 2(d) is thereby subject to the interim licence of 36 months duration and the achievement of Milestone 1. To that extent, clauses 2(b) and 2(d) are complimentary, not alternatives.
93UESL contended that when read as a whole, clause 2 set out a series of pre- conditions to be satisfied before UESL granted the full licence to SAS. The conditions were as follows:
(a) Milestone 1 must have been achieved;
(b) the Interim Licence must have been granted for a term of 36 months;
(c) Milestone 2 and/or Milestone 3 must have been achieved by SAS;
(d) UESL must have terminated the Current Licence Agreement with Green Camel within 14 days of SAS satisfying either Milestone 2 or 3;
(e) SAS must pay a fee of $1.00 to UESL; and
(f) the parties must agree to the Licence Agreement.
Consideration
94Several things are clear if the SAS argument is correct. First, UESL would be obliged to grant the Licence (as defined) to SAS even though the problem caused by Green Camel has not been finally resolved. Significant issues between Green Camel and UESL still persist and the litigation in the New South Wales Supreme Court remains unfinished.
95Secondly, it would be an odd outcome for SAS to obtain a full licence in circumstances where the grant of the Licence was to be a reward for SAS in ridding UESL of the Green Camel problem. These problems are substantial:
although still a shareholder in Green Camel, UESL no longer has any representation on the board, it is excluded from the farming site at Cobbitty and it is engaged in major litigation with Green Camel. These matters are an unwarranted distraction which impedes the development and commercial exploitation of UESL’s aquaponic food production system. The problems remain unresolved.
96Thirdly, there is substantial potential for confusion, dispute and delay if UESL grants SAS a full licence for Australia in relation to the Blue Farm Technology because it would cover the same intellectual property rights and the Australian component of the territory licensed to Green Camel. The litigation between them remains on foot. UESL has raised in its counter-claim the issue of the validity of its termination of the Green Camel Licence. As Bodlovich observed in his email on 20 December 2019, Green Camel has not acknowledged the UESL letter of termination and may claim that the licence is still on foot or that UESL has wrongfully terminated the licence.
97Central to this issue is clause 2 of the Principal Agreement and its interpretation. Under clause 2(a), subject to achieving Milestone 1, UESL agreed to grant SAS an Interim Licence for the territory of Australia. This licence is to begin on the Licence Commencement Date and continue for a period 36 months.
98Because “Interim Licence” is defined in the Principal Agreement as the licence granted pursuant to clause 2(a) of the Principal Agreement, I note that the word “interim” in that clause should probably be read as “Interim”. The Licence Commencement Date will be a date after Milestone 1 is completed. The parties have not stated the precise date but it would be in about September 2018.
99Clause 2(b) emphasises that the interim licence is for a term of 36 months. The licence will be converted to a full licence upon SAS achieving one or both
of Milestone 2 or 3. I infer that, for the conversion to occur, SAS must achieve Milestone 2 or 3 within the 36 month period for which the interim licence runs. It seems to me that the full licence appears to be the licence which flows from the Licence Agreement to be entered by SAS and UESL.
100UESL agrees in clause 2(c) that, within 14 days of SAS satisfying Milestone 2 or 3, it will terminate the Current Licence Agreement with Green Camel in accordance with Milestone 4. Milestone 4 states that the completion criteria for that Milestone is a written confirmation from UESL of the termination. What is clear is that, before UESL can enter the Licence Agreement with SAS, the latter must satisfy Milestone 2 or 3.
101Clause 2(d) then repeats that, after Milestone 1 is satisfied, and SAS obtains an interim licence, UESL will grant SAS the full licence for a fee of $1 after the termination of the Current Licence Agreement with Green Camel.
102When read as a whole in the broader context of the Principal Agreement generally, the termination of the Current Licence Agreement assumes that SAS has satisfied Milestone 2 or 3. In my opinion, if UESL seeks to terminate its agreement with Green Camel, in reliance upon general common law doctrine but independently of the terms of the Principal Agreement, then it can do so. However, in that eventuality, clause 2(d) does not then operate to require UESL to grant SAS a full licence as a result. In short, I consider clause 2 should be read so that UESL is obliged to grant SAS a full licence upon the termination of the Current Licence Agreement only if SAS satisfied Milestones 2 or 3. Because no relevant pre-condition was met, I find that SAS is not entitled to a full licence under clause 2(d) of the Principal Agreement.
Is SAS entitled to an order that UESL enter into a full licence agreement with it?
103For the reasons set out, I find that SAS is not entitled to an order that UESL enter into a full licence agreement with it.
Relief
104There was some discussion at trial about whether, assuming Milestone 2 or 3 was satisfied, SAS and UESL could enter into a licence agreement. Because of my earlier findings, it is strictly unnecessary for me to address this question. However, I will do so briefly.
105UESL contended that because SAS’s interim licence had to be converted to a full licence, this meant that there was a new agreement between the parties. UESL said that SAS had to show that the new agreement satisfied the essential requirements of contract law including that the new agreement was sufficiently certain to be binding.
106UESL argued that any alleged full licence was void for uncertainty because:
· The full licence was the licence referred to in clause 2(b). Such a licence was granted under the Licence Agreement. This was defined in the principal agreement as an agreement “to be entered into…the terms of which will be mutually agreed”. The terms would be based upon the Current Licence Agreement. But there would be additional provisions, including without limitation, provisions regarding Access Rights, Marketing Rights, IP Rights, and the Performance Criteria. Save for the reference to “Performance Criteria”, these terms were defined in the Principal Agreement.
· Clause 2(b) was only an agreement to agree and fell within the third
category of cases in Masters v Cameron.17
· Any such licence agreement would be incomplete, and therefore void, because the parties have not agreed upon all the essential terms.
107SAS contended that the Principal Agreement constituted an agreement by which the parties intended to be bound immediately while also agreeing, upon the occurrence of a specified event, to subsequently enter into a formal document encapsulating the agreement. This fell within the first category of cases in Masters v Cameron.18
108SAS submitted, alternatively, that the Principal Agreement was within category four of the Masters v Cameron19cases where the parties were content to be bound immediately while expecting to make a further contract in substitution for the initial one containing additional terms by consent.
109SAS argued that the word “converted” in clause 2(b) confirmed that the entitlement to the non-interim licence was immediate and not subject to any other condition or intervening event.
110SAS observed that clause 2 could have said, but did not, that SAS’s interim licence would terminate and the parties would be obliged to negotiate in good faith about possibly entering into a non-interim licence. Also, clause 2(d) stated that UESL “will grant the Licence to SAS upon the termination of the Current Licence Agreement”. Thus, UESL was obliged to grant, and SAS entitled to receive, the full licence.
111SAS submitted that the court should reject UESL’s argument that no terms of the full licence had been agreed and that the court did not know what the content of the Licence Agreement would be. This was said to be the case for
(1954) 91 CLR 353.
Ibid.
Ibid.
several reasons:
(a) clause 2(a) spoke of an interim licence and neither party said that this claim was ineffective because the terms of the licence were uncertain; and
(b) in relation to New Zealand, UESL had complied with clause 8(a) of the Principal Agreement by granting an Unconditional Licence to SAS, reaching agreement on the terms of that licence and drafting a document to formalise that agreement. UESL did not raise any issue to the effect that clause 8(a) was too uncertain to be unenforceable.
112SAS referred to the Victorian Court of Appeal decision in Nurisvan Investment Ltd v Anyoption Holdings Pty Ltd20where the court allowed the appeal and held that the heads of agreement in question did not constitute an agreement to enter into a share sale agreement but was an agreement to negotiate in good faith in relation to concluding a share sale agreement.
Consideration
113Each case involving an examination of the categories of cases in Masters v Cameron21is governed by its own facts and the text of the particular document. However, the decisive point is the intention of the parties as objectively disclosed in the terms of the document when read in the light of the surrounding circumstances.22
114In this case the parties agreed that:
· subject to satisfying Milestone 1, UESL would grant SAS an interim licence for Australia. It was apparent from the evidence that the parties had no obvious trouble or misunderstandings about what this entailed;
[2017] VSCA 141.
(1954) 91 CLR 353.
GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634 (C.A.).
· upon SAS satisfying Milestone 2 or 3, UESL would convert its interim licence to a full licence;
· the full licence would be based upon the terms of the Current Licence Agreement (being the Green Camel Licence);
· there would be some additional terms in the full licence designed to benefit UESL. These terms relating to Access Rights, Marketing Rights, IP Rights and Performance Criteria appeared to be designed to overcome perceived shortcomings in the existing Green Camel Licence; and
· UESL would grant SAS an Unconditional Licence for New Zealand. The parties had 3 months to negotiate the terms and formalise them in a document.
115In circumstances where the parties committed to the above arrangement, I consider that their intention was to be immediately bound to the performance of their obligations. The commitment by UESL was to give SAS a full licence for Australia if it satisfied certain pre-conditions. Because that full licence was based upon the Green Camel Licence, I find that the important terms of the full licence referred to were materially the same as those in the Green Camel Licence (after making due allowance for the different identity of the licensee). Like Green Camel, SAS would be bearing the cost of commercially developing the UESL aquaponic food production system in this country. UESL sought, and SAS agreed, that UESL would have some additional rights. Of the categories identified, I note that “Performance Criteria” were not defined in the Principal Agreement. However, I infer that the parties envisaged a requirement that SAS meet some criteria about developing the Blue Farm Technology. This might well be a matter such as that referred to in the Bodlovich email dated 20 December 2019 where he said that SAS would be required within 3 years of commencing the full licence to build and
commission in Australia a Blue Farm of at least 1 hectare in size.
116In short, I consider the obligation to grant SAS the full licence under the Licence Agreement is enforceable. In my view, the agreement falls within the fourth category of Masters v Cameron23cases, where the parties were content to be bound immediately by the terms they had agreed upon but expected to make a further contract in substitution for the first one, at least insofar as it concerned clause 2 of the Principal Agreement. The new contract could contain by consent additional terms.
117It is perhaps relevant to recall that Bodlovich, Meadows and Draganovic first met in around 2012. At the time, Meadows and Draganovic were in discussions with Green Camel in relation to the future marketing of produce when the Green Camel facility at Cobbitty went into production. It was another 3 years before SAS agreed to invest $100,000 in funding UESL’s legal costs regarding its dispute with Green Camel. The 2016 Agreement and the Principal Agreement came later again.
118By the time UESL and SAS made the Principal Agreement:
· the parties were well known to each other;
· SAS had commenced and later terminated a working relationship with Green Camel. Meadows and Draganovic were familiar with the Green Camel business and its operation;
· through their discussions and dealings with UESL personnel such as Bodlovich, SAS knew of UESL’s problems with Green Camel and the difficulties which Green Camel was causing as a licensee;
· I infer that SAS understood the licence which Green Camel had and was also aware of its own position as the holder of an interim licence
(1954) 91 CLR 353.
and an entity which had the potential to obtain a full licence.
Remedy
119Again, it is not strictly necessary for me to determine the issue of whether specific performance would be the appropriate remedy if SAS had succeeded on its substantive claim. However, I will briefly address the matter.
120SAS argued that it should receive an order for specific performance and not damages because the latter was simply inadequate in the present case. This was because:
(a) the damages would be difficult to quantify but could be very significant. As the full licence was due to run for 100 years, the damages could total many millions of dollars.
(b) UESL lacked the financial capacity to make a large damages payment. Nor did the evidence disclose any reasonable basis for believing that its financial position was likely to change in the near future. Moreover, the cash held by UESL was less than $200,000 and the New South Wales Supreme Court ordered it to provide security for costs in connection with the Green Camel litigation.
121UESL submitted that SAS should not obtain equitable relief from the court.
122First, it was inappropriate to order specific performance of a licence agreement, the terms of which had not been agreed. The court knew only that such a licence would be based upon the Green Camel Licence and that other terms would be added. Thus, an order for specific performance would not be formulated with sufficient certainty.
123Secondly, the relief sought by SAS would cause damage to the Blue Farm business because the Licence Agreement which SAS sought was over part of the same territory and in respect of the same intellectual property as that held
by Green Camel.
124Thirdly, such relief was premature because the Principal Agreement remained on foot. Accordingly, SAS still has until 9 May 2021 to achieve Milestone 2 or 3.
Consideration
125I would be inclined to grant specific performance in relation to the UESL obligation to enter the Licence Agreement with SAS. This would be consistent with the view of the Court of Appeal Nurisvan where the court expressed no obvious problem with the order made at first instance confirming that it was “well established that a contract to acquire shares in an unquoted company for the whole of the shares in a public or private company may be specifically enforced”.24
126It is clear that the damages awarded could be very substantial and in its present and currently foreseeable circumstances, UESL could not meet a large award of damages.
127The Blue Farm Technology constitutes a special form of property which is not available from other sources. Unless an order for specific performance is granted, SAS would not be otherwise able to access the technology.
Objections
128UESL objected to the tender of the letters from Bruno Del Re on behalf of SAS to UESL dated 20 August 2019 and 28 October 2019 respectively. UESL argued that the letters were irrelevant and not put to any witness.
129
There seem to be no dispute that UESL received the letters and, to that extent, they formed part of the background to the dispute. However, I accept that they are not relevant to the construction of the agreement between UESL
Nurisvan Investment Ltd v Anyoption Holdings Pty Ltd [2017] VSCA 141 at [127] – [129].
and SAS and they are not admissible for that purpose.
Conclusion
130For the reasons set out, I find that the plaintiff’s claim should be dismissed.
131I will hear the parties on the form of final order and costs. I direct the parties to confer on these matters in an effort to agree upon orders giving effect to this judgment. If they cannot agree, then by 4:00pm on Monday, 8 February 2021, each party is to file with my chambers and serve a written submission setting out the orders sought and the reasons therefor. The submissions are not to exceed five A4 pages, a minimum 12 point typeface, and 40mm margins on either side of the page. By 4:00pm on Wednesday, 10 February 2020, each party may file a reply submission limited to no more than three A4 pages.
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