Stock Acceptance & Securities Pty Ltd v Castaneda Management Pty Ltd

[1988] FCA 652

. '\

IN THE FEDERAL COURT OF AUSTRALIA )

)

VICTORIA DISTRICT REGISTRY	)	V. No. G . 3 5 4 of 1988
)
GENERAL DIVISION	1
BETWEEN:

STOCK ACCEPTANCE AND SECURITIES PTY LIMITED

JOHN NEVILLE VIAL, CECILY MARY VIAL

Applicants

and

CASTANEDA MANAGEMENT PTY. LIMITED

B. S . BEVERAGES PTY. LIMITED

DAVID BLAKE

Respondents

COURT: NORTHROP J.
DATE: 27 OCTOBER 1988

PLACE: MELBOURNE

REASONS FOR JUDGMENT

On 29 September 1988 the Court made the following

order:

(b) in the event that question (a) is answered in

"1. The questions as to whether:

(a) the firstnamed Applicant is entitled to receive a transfer of the legal title to each of the registered and unregistered trade marks and brand names referred to In the agreement exhqbited to the Affidavit of John Neville Vial sworn 8th day of September, 1988 and marked "JNV-1" ("the said trade marks and brand names"); and

c - 2 -

t h e a f f i r m a t i v e , t h e R e s p o n d e n t s a s e c u r i t y

for	any	unpaid	purchase	moneys	and	on-going
s e c u r i t y	f o r	r o y a l t y	payments	a r e	e n t i t l e d	t o

r ece ive unda ted t r ans fe r s sa id t he o f

trademarks and brand names p u r s u a n t t o e i t h e r

c l a u s e s 1 2 o r 16 of the said agreement .

be de t e rmined sepa ra t e ly from any o the r ques t ion i n

t h e s e p r o c e e d i n g s b e f o r e t hi a l t h e s e o f

proceedlngs pursuant to Order 2 9 Rule 2 of t he

Rules of t h i s Honourable Court."

The a c t i o n commenced i n t h i s C o u r t i s based upon a

very complex agreement tered lnto between Castaneda

Management Pty. Limited, B.S. Beverages Pty. Llmited and

David Blake, on t h e o n e p a r t , t h e r e i n r e f e r r e d t o a s t h e

vendors , and Stock Acceptance and Securl t ies Pty. Limited

t h e r e i n r e f e r r e d t o a s t h e purchaser, and John Neville Vial

and Cec i ly Nary Via l therern re fe r red to as the guarantors .

The	agreement	was	e n t e r e d	i n t o	on 23 December	1987 and
se t t lement	took	p lace	on	1 February	1988.	I t i s not

necessa ry fo r t he pu rposes o f dec id lng t h i s p re l imina ry i s sue

t o make a n y d e t a i l e d r e f e r e n c e t o t h e t e r m s o f t h e agreement

b u t ,	i n	s u b s t a n c e ,	a	r e f e r e n c e	t o	t h e	r e c i t a l s	i l l u s t r a t e s
the	na ture	the	agreement .	o f	Under	the	agreement	the

purchaser was to purchase a business from the v ndors,

i n c l u d i n g l a n d a n d i n t e r e s t In ground water, being mineral

wa te r , t he s tock i n t r ade o f t he bus iness of the vendor and,

by r e c l t a l D of t h e r e c l t a l s , c e r t a i n t r a d e marks or brand

names. R e c i t a l D i s a s f o l l o w s :

"D. CASTANEDA and DAVID BLAKE ( h e r e i n a f t e r c a l l e d

"Blake") have subjec t to agreement upon the terms

a n d c o n d i t i o n s o f s a l e a g r e e d t o t r a n s f e r t o t h e

purchaser	a l l i t s r i g h t t i t l e	and	i n t e r e s t i n t he
following Trade	Marks and	Brand	Names:

"Boon Spa"

. - 3 -

"Tavern Special"
"Tap Room Special"
"Spritz"
"Enviropak"
"Creightons Crush"
"Raffles" and

"Macho"

Of the aforesaid names, the names "Boon Spa",

"Enviropak", "Creightons Crush" and "Raffles" are

registered Trade Marks whilst in respect of the

names "Tavern Speclal" , "Tap Room Special",

"Spritz" and "Macho", the company claims	a common
law right of usage."

Recital F is as follows:

"F. The Guarantors have requested the Vendors to

enter this agreement to sell and have agreed with
the vendor to guarantee the performance of the
purchase pursuant to the terms and provisions of

this agreement."

At this stage, I stress the words "performance of

the purchase".

Clause One of the agreement contains a number of

terms and meanings to be glven to those terms when appearlng

in the agreement. "Industrial property" is defined to

include the trade marks and brand names referred to I n

Recital D. The property as sold is defined to include the

industrial property, and the word "trade names" is defined to

mean the trade names and brand names referred to in Recital

D. Clause 2 of the agreement sets out the assets to be

acquired and the total purchase price. The assets include

the intellectual property and I take that to include the

industrial property. Under this clause the value glven to

the trade marks and brand names is $20,000, while the rights

in the mlneral springs is said to be valued at $25,000.

Under clause 4 provisions are set out, which, in substance,

provide for what may be described as royalties to be pald by the purchasers on the quantum of sales of mineral waters and

soft drinks or cordials under the brand and trade names as

sold by the vendor, and in addition, on sales from the

mineral water produced from the spring. The opening words	of
the clause are as follows:

“The Purchaser agrees to pay to the partles

specified a royalty as hereinafter specified for 10

years from the settlement date . . . l ’

This royalty is in addition to the purchase price,

although in many respects it is of the nature of a purchase

price. The payments of royalties are to extend for a period

of ten years. The amount of the royalties depends upon the

quantum or volume of sales but at the same time	a minimum
amount is required to be paid as provided for in clause	5.

Clause 9 provides for the method of payment and

under clause 9(a)(iii) speclal provision is made for part of
the payment to take the form of allotment of shares. Clause
l1 has had a number of deletlons and alterations made to the

typed form and it should be noted that the agreement in fact

was prepared by the solicitors	f o r	the vendor. Sub-clause
ll(c), apparently, has been deleted since there is	a	line
across the first line of the typing with	a	diagonal line

across the rest of that paragraph and initials appearing at
the side, which suggests that his ub-clause has no

operation, but it is of some importance to what is to be said

later. I shall read the whole sub-clause, but the last

sentence is the important part:

"(c) If the Purchaser is unable to complete on or

before settlement date the purchase by being

unable	to	allot	the	shares	as	aforesaid,	the
Vendor	of	the	freehold	shall	upon	receipt	of

$410,000 cash execute a Transfer of Land in favour of the Purchaser and subject to payment of all duties and fees by the Purchaser register the Transfer and be entitled to hold and retain the

title as security for payment of the balance of the purchase price and execution of the Royalty

Agreement complying with the terms of this

agreement. At the Purchaser's request a separate

Guarantee by the Guarantors executed in the form
annexed with such amendments and modifications
which may be necessary prepared by the Vendor's
Solicitors of any outstanding obligations of the

Purchaser shall be accepted by the Vendor and the

Title released to the Vendor. "

The last sentence 1s of importance and special

reference	is	made	to	the	words	"executed	in	the	form
annexed".

Clause 12 is the crucial clause for present

purposes, and I read that clause:

"12. As security for any unpaid purchase monies and

ongoing security for royalty payments, the

Purchaser shall execute undated transfers of both
registered and unregistered Trade Marks and Brand

Names which the vendor shall hold in escrow as

security for payment as aforesaid for so long as

this agreement shall remain executory. At the

Purchaser's request a separate Guarantee by the

Guarantors as provided in Clause 11 hereof

prepared by the Vendor's Solicitors of any

outstanding obligations of the Purchaser shall be

accepted by the vendor and the undated Transfers

released to the Purchaser provided that he

Guarantors shall be released from their Personal

Guarantees upon providing to the Vendor a

Guarantee in similar terms to the form annexed of

a	listed Public Company which is acceptable to
the Vendors.	"

As part of the documentation with the agreement,

but not as a clause of the agreement, there appears on page

27 of the typewritten agreement, all prepared by the vendor's

solicitors, a document headed "Guarantee and Indemnity", the

relevant parts of which read as follows:

We, the persons whose names and addresses appear In

the Schedule hereto (hereinafter jointly and

severplly called "the Guarantors") IN CONSIDERATION

of the Vendor named in the within Agreement having
at our request consented and agreed to sell the

property, assets and undertakings described in the

said Agreement to the Purchaser named in the said

Agreement for the price and upon the terms and

conditions therein set forth, HEREBY JOINTLY AND

SEVERALLY GUARANTEE the du and p u n c t x

performance and observance by the said Purchaser of the covenants and conditions contained in the said Agreement and the due and punctual payment by the

Purchaser of the purchase money and other money

required to be paid thereunder WE HEREBY AGREE to

indemnify	and	keep	indemnified	the	said	vendor
against	all	loss	costs	charges	and	expenses

whatsoever which the said vendor may incur by

reason of any default by the said Purchaser or by

reason of any failure of the said Agreement."

The schedule refers to the guarantors; that is,

John Neville Vial and Ceclly MaKy Vial, who signed that

guarantee. Page 28 contains the attestation clauses,

signatures	and	common	seals	of	the	companies	to	the
agreement.

As far as the first question sought to be answered

is concerned, there seems to be	no	dispute and counsel for
the respondents has made	no	submlssions to the contrary that

the question should be answered yes. It will be recalled

that that question is whether the first appllcant is entitled

to receive a transfer of the legal title to each of the

registered and unregistered trade marks and brand names

referred to in the agreement. From a consideratlon of the

terms of the agreement and from a consideration of the

statement of claim and defence, and in partlcular paragraphs

14 and 15 of the statement of claim and paragraphs 17 and 18

of the defence, it appears that the question must be answered

yes. Paragraphs 14 and	15	of the statement of claim are as
follows:

"14.	Further or in the alternative, pursuant to the
Agreement Castaneda L Blake sold to Stock
Acceptance all their right title and interest in
and to certain trade marks and brand names.

PARTICULARS

The trade marks and brand names are identified in

recital D of the document constituting the said

Agreement.

15. Wrongfully and in breach of the Agreement

Castaneda and Blake have failed neglected and

refused to execute formal transfers and/or

assignments to Stock Acceptance of the said trade

marks and brand names."

Paragraphs 17 and 18 of the Defence read as follows:-

"17. They admit that subject and pursuant to the terms

of the Agreement, they agreed to sell all their
right title and interest I n and to the trademarks

to the firstnamed Applicant. Save as aforesaid,

they do not admit any of the other allegations

contained in paragraph 14 thereof.

18. They admit that they have refused to execute

formal	transfers	and/or	assignments	of	the
trademarks	to	the	firstnamed	Appllcant	but

otherwise deny each and every other allegation

contained in paragraph 15 thereof."

It appears that the transfers of these trade marks

and brand names have not in fact been executed by the

vendors, but on the material before me it seems clear that

that ought to be done. In this context, clause 12 of the

agreement is rather strange. It is partly designed to

provide a security for the payment of not only purchase

monies but ongoing obligations under the royalty provisions

of the agreement and it takes a form that the purchasers

shall execute undated transfers of both reglstered and

unregistered trade marks and brand names which are then to be

held by the vendors in escrow "as security f o r payment as

aforesaid", presumably until all royalty payments have been

paid. But there has been	no transfer of these trade marks to
the purchaser.

The real question however arises in relation to the

answer to the second question. I propose to answer question

l.(a) in the affirmative and in those circumstances the

second question for determination 1s whether the respondents,

as security for any unpaid purchase monies and ongoing

security for royalty payments are entitled to receive undated

transfers of the said trade marks and brand names pursuant to

either clauses 12 or 16 of the said agreement. NO

submissions have been made to me in relatlon to clause	16,
but counsel for the respondents has contended that question

l.(b) should	be	answered	"yes",	while	counsel	for	the
applicants	has	contended	that	question	l.(b)	should	be

answered "no".

There is reference to guarantees only in recital F;

clause ll(c), which has been crossed out; clause 12, and the

guarantee itself. Emphasis was placed by counsel for the

respondents on the use of the word "separate" in clause 12,

namely, at the purchaser's request "a separate Guarantee"

will be given and	so on.	It may well be even if that view is
correct and the guarantee in the agreement is not	a	separate

guarantee, there is nothing to stop the purchasers from

requesting a separate guarantee now, in which case the

consequence would follow that the separate guarantee would

replace the obligation to give the signed and executed

transfers in escrow to the vendor. However, that is not the

issue before me. I must decide whether the guarantee which

in fact has been executed is a guarantee coming within clause

12.

On the face of it, the guarantee is sufficient to

cover the royalty payments. The agreement seems to draw a

distinction between the purchase money and other money

required to be paid under the agreement, the other money

primarily being the royalties. The purchase money referred

to in clauses 12 and 9 cover the other possible payment In

relation to the shares. The other money is then limited to
the royalties.

Although clause 11 is not in operation it was urged

that reference may be made to it by both parties to support
their respective arguments. In this regard the use of the

word "separate" in clause 12 was said to refer to somethlng

separate and distinct from the guarantee whlch was In fact

executed.	As	opposed	to	that,	clause	ll(c)	refers	to	a
guarantee	in	the	form	annexed,	that	is	annexed	to	the

agreement, and the only guarantee annexed to the agreement is

that which has been signed by the purchasers.

Having regard to the obvious intentlon of the

parties as appears from the original form of clause ll(c) and
from clause 12 itself, and having regard to the fact that the

purpose behind the giving of the signed transfers to be held

in escrow is as a form of a security, and having regard to

the fact that the guarantee has been given by the guarantors in a form sufficient to cover any loss arising from a breach

of a payment of those royalties, in my opinion, clause 12

should	be	construed	in a way	which	gives	effect	to	the
intention	of	the	parties,	particularly	since	if	it	is

construed in the other way, the same result could be achieved

by the purchaser requesting a separate guarantee to be given

by the guarantors. It would be wrong in law to require that

to be done except in extreme cases and in the present case I am satisfied that upon its proper construction the guarantee which in fact is annexed to the agreement and is in fact executed by the guarantors 1s a guarantee for the purposes of clause 12 of the agreement. It is in fact a separate

guarantee in that it is not part of the agreement although it

guarantees both the payment of the purchase moneys and the

royalties. In my opinion the second question should be

answered in the negative. In other words, the purchasers are

not required to give the executed assignments or transfers of

those trade marks and brand names	in accordance with clause
12.

Accordingly, the answers to the two questions

referred to the Court are:-

l.(a) Yes

l.(b) No.

Costs reserved.