Advanta Seeds Pty Ltd v Nuseed Pty Ltd

INTRODUCTION

1. By an amended originating application filed on 17 June 2024, the applicant, Advanta Seeds Pty Ltd, seeks various forms of relief said to arise from the alleged breach of the "Triazine Tolerant CMS Hybrid Licensing Agreement" made between the parties on or about 9 September 2016, relating to, inter alia, the affixing of certain labelling on packaging containing "TT Hybrid Canola Seed".
2. On 22 April 2024, Downes J made Orders in accordance with a draft proposed by the parties and without the requirement for appearances. An interlocutory application was filed by Advanta on 12 September 2024 and was heard by me in the Commercial & Corporations Duty List on 19 September 2024. It concerns, in essence, the interpretation of a written undertaking given to the Court by the respondent, Nuseed Pty Ltd, as recorded in paragraph 3 of the Orders. That undertaking is in the following terms: Without making any admission that it is legally obliged to do so or that any of the matters alleged in the Statement of Claim filed by the Applicant against the Respondent are accurate, it will not, from 21 days after the date of these orders until the conclusion of the trial or such further order of the Court:
3. sell or distribute TT Hybrid Canola Seed until the Advanta Label is affixed to packaging containing the TT Hybrid Canola Seed in accordance with section 3.4 and schedule 6.1 of the Licensing Agreement; and
4. sell or distribute TT Hybrid Canola Seed until the Exclusive Rights Wording is covered by a blank label or similar covering.
5. Pursuant to r 39.21 of the Federal Court Rules 2011 (Cth), Advanta seeks to enforce the undertaking and, further or alternatively, seeks injunctive relief pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth) and/or s 234 of Sch 2 to the Competition and Consumer Act 2010 (Cth), requiring Nuseed to affix labelling the subject of its undertaking on 18 April 2024, or to provide third party retailers with a sufficient number of labels and written instructions as to their affixture.
6. Advanta relied on the following affidavits in support of its application:
7. affidavit of Andrew Douglas Short filed on 16 April 2024 (First Short Affidavit);
8. affidavit of Mr Short filed on 11 September 2024 (Second Short Affidavit);
9. affidavit of Mathew Allan Shelley filed on 11 September 2024;
10. affidavit of Mr Shelley filed on 17 September 2024; and
11. affidavit of Mr Shelley sworn on 17 September 2024.
12. Nuseed opposed the interlocutory orders sought on the basis that the undertaking was not breached, or - failing that - the requirements for the grant of the injunction were not proved. It contended the application should be dismissed with costs. Nuseed relied on the affidavit of Rachel Frances Palumbo filed on 17 September 2024 (Palumbo Affidavit).
13. For the reasons that follow, the interlocutory application must be dismissed, with costs.

RELEVANT BACKGROUND

1. The parties are in the business of developing, producing and distributing seeds for use in agriculture and cropping in Australia. On or about 6 October 2009, Advanta filed an application for an Australian patent (application number 2009304572). On 7 January 2016, Australian Patent 2009304572 (Patent) was granted. The Patent is concerned with a hybrid canola plant cell that is tolerant to triazines (the particular cellular trait the subject of the patent is referred to as the Advanta Trait). Triazines are a family of herbicides used for control of weeds in commercial agriculture. The relevant category of canola seed featuring the Advanta Trait is referred to as "TT Hybrid Canola Seed".
2. Under the Licensing Agreement, Nuseed is, inter alia, authorised to develop canola hybrids that are tolerant to triazines through the expression of the Advanta Trait, and to breed, multiply and produce on a commercial scale TT Hybrid Canola Seed for sale to end-users. Relevantly, cl 3.4.1 of the Licensing Agreement requires Nuseed to affix, and cause all Processing Subcontractors (as defined) to affix, the "TT Canola Seed Label Licence" (Advanta Label) to all TT Hybrid Canola Seed packaging, in the form prescribed by Sch 6.1 of the Licensing Agreement.
3. Since late 2023, Advanta has become aware that Nuseed has sold bags of TT Hybrid Canola Seed which do not feature the TT Hybrid Canola Seed Label Licence, contrary to the relevant packaging and labelling requirements under cl 3.4.1 of the Licensing Agreement. In effect, this fails to acknowledge Advanta or the Advanta Patent on the TT Hybrid Canola Seed products marketed by Nuseed. Additionally, those bags featured the allegedly erroneous statement that "Nuseed has exclusive rights to produce and market this [triazine tolerant canola seed] variety in Australia and you will not export this seed from Australia without the express written permission of Nuseed" (Exclusive Rights Wording, referred to by Advanta as the Nuseed Exclusivity Representation): First Short Affidavit, ADS1.
4. From 13 May 2024, being 21 days from the date of the Orders, Advanta inspected bags of Nuseed-branded canola seed by three separate retailers in Victoria and Western Australia, and identified that those bags had not been re-labelled in accordance with the undertaking. In correspondence between the parties, Nuseed asserted that there was no breach of the undertaking, on the basis that it "was not required to re-label goods already in the possession of third party retailers as at the date on which the undertaking took effect" and that the undertaking "only applied to stock held in [its] own warehouses" (emphasis added). Conversely, Advanta contended that the undertaking was breached for the reason that the undertaking "requires all bags of TT Hybrid Canola Seed in the possession of third party retailers to be re-labelled …" (emphasis added).
5. As such, the proper construction of the undertaking forms the crux of the relevant dispute between the parties.

Construction of the undertaking

1. Rule 39.21(1) of the Rules provides: A party may apply to the Court for an order requiring a person to do, or refrain from doing, an act or thing, including payment of a sum of money, if:
2. the person (whether a party or not) has given the Court an undertaking to do, or refrain from doing, the act of thing; and
3. the person has failed to fulfil the undertaking.
4. On such an application, the Court must determine "whether it has been shown that [the person] [has] failed to fulfil the undertaking, properly construed, and, if so, whether the relief claimed should be granted": International Hair Cosmetics Group Pty Ltd v International Hair Cosmetics Ltd [2011] FCA 339; 218 FCR 398 (Logan J) at [44].
5. I accept that, in circumstances where such an undertaking is part of an order of the Court agreed by consent, evidence of surrounding circumstances is admissible for the purpose of construing the undertaking: International Cosmetics at [49]-[50]; Nokia Corporation v Liu [2009] FCAFC 138; 179 FCR 422 (Finn, Sundberg and Edmonds JJ) at [29]-[31]. That does not displace, however, the usual principles relevant to the construction of such an undertaking, it being accepted that the principles relevant to the interpretation of contracts provide appropriate guidance: CCOM Pty Ltd v Jiejing Pty Ltd [1992] FCA 519; 36 FCR 524 (Drummond J) at 527. Consequently, unless the undertaking is ambiguous or capable of more than one meaning, it will not be appropriate to have recourse to evidence of surrounding circumstances: Repatriation Commission v Nation (1995) 57 FCR 25 (Beaumont J, Black CJ and Jenkinson J agreeing) at 34, [u]nder the ordinary rules of construction, evidence of surrounding circumstances is admissible to assist in [construction] of an instrument if the language is ambiguous or susceptible of more than one meaning, but not admissible to contradict the language of the instrument when it has "a plain meaning" (see Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 per Mason J at 352). (Emphasis added.)

Text of the undertaking

1. Advanta contended that ambiguity arose from the use of the word "distribute" (in the phrase, "will not … sell or distribute"). It argued that the word was referable to any means by which Nuseed supplies its product to the public. It is not - in the context of the undertaking - limited to, expressly or implicitly, product stored in Nuseed's warehouses, but rather contemplates, "all … means by which Nuseed supplies canola seed to the end customer". In support of that contention, Advanta relied on the Nuseed website, which contains a "Find a Nuseed Distributor" function. It argued that, when considered alongside cl 1.25 of the Licensing Agreement, which defined a "Distributor" to mean "a Person Commercialising TT Hybrid Canola Seed by or on behalf of Nuseed" and cl 1.18, which defined, inter alia, "Commercialising" to mean "… the offer for sale, sale and/or distribution, either directly or through a Distributor of TT Hybrid Canola Seed to Growers for the purpose of Cultivation by such Growers", the word "distribute" in the undertaking is not, expressly or implicitly, limited only to product stored in Nuseed's warehouses. By way of relevant background, Ms Palumbo, the General Manager for Australia of Nuseed, deposed in the Palumbo Affidavit at [6], that: Nuseed does not sell its TT Hybrid Canola Seed directly to growers. Rather, it supplies this product to third party retailers located in each state and territory in Australia. Growers can purchase the TT Hybrid Canola Seed directly from the third-party retailers. Also a number of third-party retailers supply the TT Hybrid Canola Seed to their own distributors who supply the product to growers.
2. Nuseed did not dispute that third-party retailers have sold or distributed TT Hybrid Canola Seed since 13 May 2024 without the Advanta Label or covering the Exclusive Rights Wording. It argued however that Nuseed has not breached the undertaking because, subsequent to 13 May 2024, Nuseed has not supplied any third-party retailers, or anyone else, without affixing the Advanta Label or covering the Exclusive Rights Wording as required by the undertaking.
3. The difficulty for Advanta is twofold. First, the plain text of the undertaking does not require Nuseed to rectify a past act. It is an undertaking given as to future matters, indeed one that did not bite until 21 days after the date of the Orders, and so cannot require Nuseed to do an act in relation to product which has already been sold or distributed by it to third-parties, whether they be described as "Distributors" under the terms of the Licensing Agreement, or otherwise.
4. Secondly, despite some attempt by Advanta to rely on retention of title clauses in some of the agreements between Nuseed and third-party sellers, there was no evidence that Nuseed remained the owner of any of the product stored in the warehouses of those third-parties such that - in an attempt to comply with the undertaking - it would be entitled to and/or able to require them to return the product to Nuseed, to affix a label at Nuseed's direction, or to permit Nuseed to enter warehouses for such purposes.
5. I am not persuaded that there is any ambiguity in the undertaking as recorded in the Orders and it is therefore not permissible to have regard to the evidence of surrounding circumstances on which Advanta sought to rely. In any event, that evidence would not have assisted Advanta.
6. Advanta pointed to correspondence between the parties exchanged before the undertaking was provided. Relevantly, on 17 April 2024, Advanta's solicitors wrote to Nuseed's solicitors in the following terms: … the amendments to Nuseed's packaging which are referred to in its letter [dated 16 April 2024] would not rectify Nuseed's packaging which is either:
7. already printed and held at Nuseed's facilities; and/or
8. held in stock at various retail outlets. … it is apparent that there is HyTTec seed in stock at various retail outlets.
9. The next day, Nuseed's solicitors responded, relevantly: Our client requires a short period of time to arrange for the stickers to be produced, to be sent to all of its distribution centres around Australia and applied to the products. … … to require Nuseed to cease sales of its product [until the re-labelling process is completed] would be hugely disruptive to Nuseed's business and to the canola growing industry as well. … In the circumstances, it is reasonable that Nuseed be allowed to continue to sell the product without the stickers for a short period of time, during which period it takes all reasonable steps to put the stickers in place.
10. Advanta argued that there was no suggestion in Nuseed's reply that the re-labelling process would not apply to stock held at retail outlets, which concern had been specifically raised in Advanta's letter of 17 April 2024. Further, Advanta asserted that Nuseed's reference to the difficulties with the prospect of "[ceasing] sales of its product" as part of the re-labelling process implied that TT Hybrid Canola Seed in stock at retail outlets would also be re-labelled. Separately, Advanta submitted that it would be reasonable to infer that Nuseed could, because of its pre-existing business arrangements with retailers and the available online resources, determine the identity and location of retailers stocking TT Hybrid Canola Seed with ease.
11. The correspondence cannot be construed in the manner for which Advanta contended. Although I accept that the letter of 17 April 2024 specifically raised the issue of "stock [held] at various retail outlets", the response from Nuseed was equivocal. First, it objected to being required to cease sales until the re-labelling process was completed and put forward the proposition that it be allowed to continue to sell the product without the stickers "for a short period" while attending to all reasonable steps to put the stickers in place. Secondly, Nuseed referred to "its distribution centres around Australia". Although Advanta argued that this must be construed as referrable to Nuseed's third-party retailers who are identified on the Nuseed website, such a conclusion is not inevitable. At face value, there is a difference between a company's own "distribution centre" and an entity who is a "distributor" for that company. The relevant website page is headed "Find a Nuseed Distributor". It then appears to provide a list of companies who are, again at face value, unrelated to Nuseed. That does not lead naturally to a conclusion that one of those companies could be described as one of Nuseed's own distribution centres.
12. In short, nothing in that exchange of letters would assist in resolving the ambiguity which Advanta argued arose from the text of the undertaking.
13. For these reasons, I decline to grant the orders sought in paragraph 1 of the interlocutory application.

Legal principles

1. In addressing an application for an interlocutory injunction, the Court must address two questions: Warner-Lambert Co LLC v Apotex Pty Ltd [2014] FCAFC 59; 311 ALR 632 (Allsop CJ, Jagot and Nicholas JJ) at [68]-[69], citing Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill [2006] HCA 46; 227 CLR 57 (with Gleeson CJ and Crennan J agreeing on the explanation of relevant principles) at [65]-[72]. Those questions are whether:
2. there is a prima facie case; and
3. the balance of convenience favours the grant of the injunction.
4. Advanta has offered a valuable undertaking as to damages: Second Short Affidavit at [33], [35].

A prima facie case?

1. There was no dispute between the parties that a serious question arose on the facts as pleaded, the underlying issue being whether the Licensing Agreement has been terminated. If it remains extant, then it is clear that Nuseed is in breach of it by failing to display the Advanta Label. Nuseed submitted, however, that in circumstances where Advanta has not explained how it says that the Licensing Agreement remains on foot, despite the cessation of the Advanta Patent, the case against it is weak. It is agreed between the parties that:
2. the term of the Licensing Agreement is "from the Effective Date [1 January 2016] through the life of the Advanta Patent"; and
3. the Patent ceased by operation of law on 6 October 2017 or 6 April 2018.
4. Further, Advanta contended that the Nuseed Exclusivity Representation on Nuseed's existing packaging is incorrect and misleading, and is likely to mislead consumers into thinking that Nuseed is the exclusive source of triazine tolerant canola seed when it is not. Advanta submitted that there is, therefore, also a prima facie case that the Nuseed Exclusivity Representation is misleading or deceptive in contravention of the ACL.
5. In circumstances where I accept that there is at least a prima facie case established on the material before the Court, I turn to consider the balance of convenience.

Balance of convenience?

1. Advanta submitted that the harm to it as a result of the omission of the Advanta Label, and the making of the Nuseed Exclusivity Representation, is two-fold. First, by omitting the Advanta Label from its packaging, Advanta is "deprived of a commercial advantage that it contractually bargained for". That advantage is particularised as "an awareness among the persons in the market for triazine tolerant canola seeds that Advanta, and not Nuseed, is the owner of the 'TT Hybrid Technology'". Secondly, by the inclusion of the Nuseed Exclusivity Representation on its packaging, Nuseed is "creating an incorrect understanding in the minds of purchasers and potential purchasers of TT Hybrid Canola Seeds that it is exclusively Nuseed from whom they can acquire that variety of seeds".
2. The harm was described by Mr Short, Advanta's Managing Director, in the First Short Affidavit at [34]-[35]: The Packaging and Labelling Requirements [being those requirements in cl 3.4.1 and Sch 6.1 of the Licensing Agreement] are an important feature of the Licensing Agreement because they inform consumers of Advanta's role in the development of TT Hybrid Canola Seed, which in turn increases Advanta's profile, exposure, goodwill and reputation. This is particularly because in addition to licensing its intellectual property to third parties in the manner of the Licensing Agreement, Advanta also markets other product lines directly to wholesale distributors and Growers. It is my experience in the agricultural sector that the proper attribution of licensed varietal traits and technologies, as required by clause 3.4.1 of the Licensing Agreement, is important to businesses like Advanta that invest heavily in research and innovation. Proper attribution ensures an appropriate return on that investment through market recognition of Advanta's agronomic expertise and visibility of Advanta's name in the market.
3. Advanta submitted that, in circumstances where the damage suffered if an injunction is not granted would be difficult to quantify, or would not be adequately compensated by an award of damages, "that will generally favour the grant of the interlocutory injunction" and that "[m]atters involving damage to reputation and goodwill are generally of that kind". It contended that, conversely, the prejudice to Nuseed as a result of the injunction is small and "does not prevent Nuseed from continuing to sell TT Hybrid Canola Seed nor require Nuseed to make drastic changes to its packaging". Further, it submitted, the change "merely reflects what Nuseed had already agreed to do by contract and in the existing undertaking".
4. There was little evidence of how many bags of TT Hybrid Canola Seed would be the subject of the injunction sought by Advanta, and accordingly, the nature of the difficulty that would result from the re-labelling sought. Ms Palumbo deposed (Palumbo Affidavit at [12]) to their being "at least 250 full pallets" - presumably, that would equate with approximately 12,000 20kg bags, given her evidence at [11] of the Palumbo Affidavit. On the other hand, Advanta submitted that it might mean as few as three or four 250kg bags per pallet. The evidence I was taken to, however, in the form of photographs exhibited to the First and Second Short Affidavits, suggested that most bags are 20kg bags. I accept therefore that the number of bags likely to require re-labelling is relatively large.
5. For that reason, I also accept Ms Palumbo's evidence of her opinion (Palumbo Affidavit at [14]) that it is "not feasible for this re-labelling process to be carried out by [third-party retailers] or by Nuseed visiting each retailer and distributor located across Australia". The reasons for her opinion included: there are at least 361 third-party retailers across Australia (Palumbo Affidavit at [12]); TT Hybrid Canola Seed is typically delivered to third-party retailers in bags of either 20kg or 250kg on pallets and wrapped in clingwrap (Palumbo Affidavit at [11]); typically, 48 20kg bags are piled onto a single pallet, and each pallet weighs approximately 960kgs (Palumbo Affidavit at [11]); re-labelling would require the use of forklifts to move a pallet to a clear area where it could be unwrapped, and bags to be re-labelled, re-wrapped and returned to the pallet (Palumbo Affidavit at [12]). Ms Palumbo deposed further that the third-party retailers were unlikely to be inclined to carry out this process themselves, nor was it likely that they would be inclined to permit Nuseed to enter their premises to carry out the task, or to permit Nuseed employees to operate a forklift belonging to the third-party within their premises: Palumbo Affidavit at [14]. Advanta conceded in its written submissions that the likelihood of retailers applying a sticker to seed bags "is probably low".
6. Advanta submitted that the costs to Nuseed of taking the steps sought by the injunction are "small" in the context of the outstanding dispute being "for over $12 million and increasing every month". Mr Short deposed that Nuseed sold over $40 million worth of TT Hybrid Canola Seed in 2023 alone: Second Short Affidavit, ADS2. He also deposed that sales volumes vary depending on the time of the year noting that, based on data from March 2018 to March 2024, sales pick up sharply between February and April: Second Short Affidavit at [25]. I infer, therefore, that whatever seed with non-compliant packaging remained in the warehouses of third-party retailers as at 13 May 2024, even assuming it totalled approximately 250 pallets, was a relatively small proportion of what had already been sold and distributed. On that basis, I also infer that any continuing loss or damage likely to be suffered by Advanta, should the injunction not be granted, is also proportionately lower than that which may already have been incurred.
7. In circumstances where the inconvenience caused by the grant of an injunction in the terms sought by Advanta would be visited not merely on Nuseed, but also on third-parties, I am persuaded that the balance of convenience does not favour the grant of the injunction sought.

Discretionary factors

1. Nuseed submitted that, as a matter of discretion, I should refuse the injunction on the basis of Advanta's delay. It submitted that Advanta has had since at least 15 May 2024, when Mr Short arranged for purchases to be made from various third-party retailers, to bring this application. It was submitted that the effluxion of time demonstrated there was no real urgency for the injunction to be granted. As Advanta submitted, I place little weight on the time taken to bring the application. There has, of course, been correspondence between the parties, and it cannot be said that Advanta has sat on its hands.
2. Ms Palumbo deposed to correspondence from Nuseed to Advanta by which Nuseed has offered to request that retailers of TT Hybrid Canola Seed provide purchasers at the time of purchase or delivery a note stating: "This product was developed using licensed patented Advanta owned TT Hybrid Technology. Nuseed does not claim the exclusive rights to produce and market this variety in Australia": Palumbo Affidavit at [16]. Nuseed proposed to provide this note to retailers under cover of a request stating, inter alia: "In respect of any bags you sell which have not had the adhesive labels applied to them we would be very grateful if you would supply the enclosed note to the purchaser on delivery of the seed to the purchaser". Ms Palumbo deposed that, in her opinion, because most growers are likely to have already purchased the seed previously, they would be unlikely to read the label on the package. Conversely, it would be unusual for growers to be handed a note by their retailers, and so the content of the note was more likely to be brought to a grower's attention: Palumbo Affidavit at [17].
3. Just as it is unlikely that third-party retailers will comply with a request to affix stickers to existing stock, it is also unlikely that they would agree to provide a note to purchasers of TT Hybrid Canola Seed. Nevertheless, the request would be less onerous and may stand a greater chance of fulfilment. For that reason, in the exercise of the overall discretion, I take into account that Nuseed has made this offer to Advanta. Of course, I accept that the Exclusive Rights Wording would still appear on Nuseed's packaging, and the Advanta Label would still be absent from that packaging, even if such a supplementary note were provided.

DISPOSITION

1. For these reasons, I am not persuaded that the undertaking recorded in paragraph 3 of the Orders is ambiguous. I therefore find that Nuseed has not breached the undertaking. Further, I am not satisfied that the balance of convenience favours the grant of an injunction in the terms sought in paragraph 2 of the interlocutory application.
2. The application will be dismissed with costs. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Sarah C Derrington .