CONTRACTS – CONSTRUCTION AND INTERPRETATION OF CONTRACTS –
OTHER MATTERS – where the parties entered into joint
venture and trade
mark licence agreements – under the agreements, a joint venturer may
Source
Original judgment source is linked above.
Catchwords
CONTRACTS – CONSTRUCTION AND INTERPRETATION OF CONTRACTS –OTHER MATTERS – where the parties entered into jointventure and trademark licence agreements – under the agreements, a joint venturer maybecome a "Defaulting Participant" uponwhich the other joint venturers obtainedan option to acquire the defaulting participants’ interest in the jointventure –where the third and fourth respondents became defaultingparticipants – issues of construction – whether on properconstructionof the joint venture agreement the applicant must pay a minimumprice of $40,000,000 to both or each of the third and fourth respondents–whether the trade mark licence agreement will continue in force if the applicantexercises the option to purchase the thirdand fourth respondents’interests in the joint venture – whether the applicant’s and thethird and fourth respondents’right to use the trademarks under the trade
mark licence agreement has been, or may be, revokedAustralian
Broadcasting Commission v Australasian Performing Rights Association Ltd
CONTRACTS - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - OTHER MATTERS - where the parties entered into joint venture and trade mark licence agreements - under the agreements, a joint venturer may become a "Defaulting Participant" upon which the other joint venturers obtained an option to acquire the defaulting participants' interest in the joint venture - where the third and fourth respondents became defaulting participants - issues of construction - whether on proper construction of the joint venture agreement the applicant must pay a minimum price of $40,000,000 to both or each of the third and fourth respondents - whether the trade mark licence agreement will continue in force if the applicant exercises the option to purchase the third and fourth respondents' interests in the joint venture - whether the applicant's and the third and fourth respondents' right to use the trademarks under the trade mark licence agreement has been, or may be, revoked
[2]
Australian Broadcasting Commission v Australasian Performing Rights Association Ltd[1973] HCA 36; (1973) 129 CLR 99, cited
Mr H Fraser QC with Mr T Sullivan for the applicant
[8]
Mr K Wilson SC with Mr D de Jersey for the respondents
[9]
[1] I am pressed by circumstances to give judgment promptly. My reasons will therefore be brief. I intend by this necessity no disrespect to the comprehensive and careful submissions of counsel; nor do I intend to depreciate the importance of the case to the parties.
[10]
[2] On 8 February last, I declared that the third and fourth respondents had become defaulting participants within the meaning of the joint venture agreement dated
[11]
27 June 1996 ('JVA') made between the applicant and those respondents. The consequence of the declaration is that the applicant may purchase the third and fourth respondents' interest in the joint venture and its assets.
[12]
[3] Clause 9 of the JVA set out the circumstances in which one of the joint venturers might become a defaulting participant. Clauses 9.2 and 9.3 describe what was to happen in the event that one or other of the joint venturers became defaulting participants.
[13]
'Grant of Default Option
Each Defaulting Participant upon becoming a Defaulting Participant grants to the other Participants an option to purchase its Interest ... ('the Offered Interest') which may be exercised by a Non-Defaulting Participant on the occurrence of an event set out in clauses 9.1(a) (18), (19) and (20) and will be on the terms and conditions set out in clause 9.3.'
[14]
[5] Clause 9.3, as amended by a later deed of variation, provided:
[15]
'Exercise of Default Option
If an option becomes exercisable pursuant to clause 9.2 any sale pursuant to the exercise of that option will be on the following basis:
(a) The price payable ('Transfer Value') for the Offered Interest will be the higher of $40,000,000.00 or the fair market value of the offered interest in cash ...'
[16]
[6] Further dispute has arisen between the parties concerning the terms on which the applicant may acquire the third and fourth respondents' interests in the joint venture, and whether those interests will include the right to use trademarks which are owned by the first and second respondents who licensed the joint venturers to apply them to milk products sold by the joint venturers.
[17]
[7] The background facts to the establishment of the joint venture and the business it conducted are conveniently set out in a letter written jointly by the applicant and the respondents to the expert appointed to determine the price ('fair market value') to be paid for the purchase by the applicant of the third and fourth respondents' interest in the joint venture, should it decide to exercise the option to purchase.
[18]
'2.Background
Prior to 1 July 1996, Norco conducted a milk processing operation under which it sourced milk, largely from its supplier members for processing and sale as white, flavoured and modified milk ("market milk") in Northern New South Wales under its "Norco" brands. At the time, market milk was regulated in NSW and Queensland, such that Norco effectively had a monopoly to sell market milk in an area from the Queensland border to just south of Kempsey. It was anticipated then that the regulated market would ultimately be deregulated.
Dairyfields Co-operative Association Limited (which later became Dairyfields) was a registered dairy co-operative based in Labrador in South-East Queensland. Prior to 1996, Dairyfields had entered into a joint venture/partnership arrangement with PT under which the parties conducted a milk processing operation in South East Queensland. PT was a wholly owned subsidiary of Pauls Limited ("Pauls"), (then known as QUF Industries Limited and listed on the Australian Stock Exchange). Pauls was one of the largest milk processing dairy companies in Australia, behind National Foods Limited and the Dairy Farmers Co-operative. Pauls' operations were based in Queensland, where it held over 50% of the market for market milk, selling milk under the "Pauls" brand.
As part of their arrangement, PT and Dairyfields formed GCM, a joint venture company, which held a number of joint venture assets. The Dairyfields/PT joint venture/partnership (the "GCMJV") sold milk under the "Dairyfields" brand and it had similar monopoly rights to Norco in respect of South East Queensland. However, it was understood that the Queensland dairy industry was also likely to be deregulated in the same way, and at about the same time as in NSW.
In late 1995/early 1996, Norco, Dairyfields and PT commenced negotiations to combine Norco's NSW milk processing operation with the GCMJV's operation in South East Queensland. This was, in part, driven by a desire to increase the scale of their individual operations ahead of dairy regulation. Eventually, Norco, Dairyfields and PT entered into a Joint Venture Agreement on 27 June 1996, forming the Norco Dairyfields Milk Joint Venture ("NDMJV"). Norco held 45% of the equity in the NDMJV, PT held 22% and Dairyfields 33%. The NDMJV sold milk in its "monopoly" regions in NSW under the "Norco" brands and in South East Queensland under the "Dairyfields" brands.
[19]
[9] The amended originating application seeks declarations to resolve three disputes which have arisen between the parties. They are:
[20]
(a) whether, if the applicant exercises the option to purchase the interests of the third and fourth respondents in the joint venture, the trade mark licence agreement made between the parties will continue in force;
(b) whether the applicant's and the third and fourth respondents' right to use the trademarks under that agreement has been, or may be, revoked; and
(c) whether, if the applicant exercises the option, it must pay a minimum price of $40,000,000 to the third and fourth respondents or whether it must pay a minimum price of $40,00,000 to each of those respondents.
[21]
[10] To give effect to the arrangements by which in 1998 Pauls Limited became a wholly owned subsidiary of companies in turn wholly owned by Parmalat Finanziaria SpA ('Parmalat'), and Dairyfields Pty Ltd also became a 'Parmalat' company, the parties executed four agreements. They were:
[22]
1. The 'Norco Pauls Agreement' dated 7 August 1998 between the applicant and the third respondent ('PT').
2. The 'NDM' Agreement dated 7 August 1998 made between PT, Dairyfields Pty Ltd ('DF') and the applicant ('Norco').
3. A 'Deed Varying Joint Venture Agreement' dated 21 December 1998 between PT, Norco and DF ('variation deed').
4. A 'Trade Mark Licence Agreement' dated 30 November 1998 between the parties to this application, PT, DF, Norco, Pauls Limited and Pauls Ice Cream and Milk Limited.
[23]
[11] The resolution of the parties' disputes is to be essayed by construing the terms of the written agreements by which they have regulated their relationships. The principles which I understand should be applied in construing the written agreements are these:
[24]
1. The court must first look at the words of the document which constitutes the contract between the parties. The whole of the document must be considered and a construction should be attempted which will make all clauses operate harmoniously. If the words are plain and unambiguous the court must give effect to them even though the result may appear one sided or even unreasonable. See Australian Broadcasting Commission v Australasian Performing Right Association Ltd[1973] HCA 36; (1973) 129 CLR 99 at 109.
2. If the language of the contract is ambiguous, or open to two constructions, or if the plain meaning of the clause renders it inconsistent with another, the court should resolve the ambiguity, or reconcile the inconsistency, by adopting a construction which accords with 'business common sense' or the commercial purpose of the agreement which appears from its terms and the knowledge, common to the parties, which formed the background to the formation of their agreement. See Australian Broadcasting Commission; Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd(1990) 20 NSWLR 310 at 313-4 per Kirby P.
3. If the words of a contract, while plain and unambiguous, lead to a result which is not only unreasonable but absurd, the court should construe the contract, if necessary by supplying, omitting, or correcting words to avoid the absurdity: Watson v Phipps(1985) 60 ALJR 1 at 3; Westpac Banking Corporation v Tanzone Pty Ltd[2000] NSWCA 25 paras [19] and [20]. Before this rule is put into operation it must, I think, be unmistakably clear that the parties cannot have meant what they said was their bargain.
[25]
[12] In my earlier judgment ([2006] QSC 015 para [37]) I expressed the principles applicable to the construction of commercial contracts succinctly. The compressed mode of expression gave rise to a slight inaccuracy. My understanding of the appropriate principles is set out in the previous paragraph.
[26]
[13] As a result of the arrangements made in 1998 the extent of Norco's interest, as that term is defined in the JVA, increased from 45 per cent to 50 per cent. DF's interest was reduced to 28 per cent from 33 per cent. PT's interest remained at 22 per cent. It is right to say, as the applicant does, that 'in commercial terms' the joint venture became one of equal interests between Norco and companies in the Parmalat Group.
[27]
[14] By cl 2 of the Trade Mark Licence Agreement ('TML Agreement') Pauls Limited and Pauls Ice Cream & Milk Pty Ltd ('the licensors') granted to PT, DF and Norco which were, at the time of the agreement, trading as 'NDM', a licence to use the licensors' trademarks in the Territory (as defined in the agreement) in relation to milk products sold by NDM. By cl 3 the licensors promised not to grant any license to use their trademarks in the Territory to any other person without the consent of NDM, and they also promised that they would not themselves use the trademarks in the Territory 'on products which are identical in nature or substitutable for' products sold by NDM and to which it applied the trademarks.
[28]
[15] Clause 15, which is critical to the dispute, provided:
[29]
'Termination
The ... Licensors will have the right to terminate the authority to use any of the Trade Marks without notice to NDM:
...
(b) if for any reason NDM ceases to conduct the Business Operation;
...'
[30]
[16] The term 'Business Operation' is not defined in the TML Agreement. Recital C, however, declared that NDM, which was earlier in the agreement identified as PT, DF and Norco, desired to use the trademarks in connection with the Business Operation and desired to use the 'Pauls Name' as part of the Joint Venture Name. The joint venture was defined to mean the venture established pursuant to the JVA.
[31]
[17] Clause 1.1 provided that subject to a contrary contextual indication 'terms defined in the JVA have the same meaning in this agreement.' In the JVA 'Business Operations' are defined to mean 'the business operated by the Participants utilising the Assets ...'. The business was said to entail the purchase of raw milk from DF and Norco and the processing, packaging and selling of milk and milk products and all incidental activities. 'Assets' was in turn defined to mean the assets, in whole or part, from time to time forming the subject of each of the Transaction Documents and such other assets used in the conduct of the Business Operations. The Transaction Documents were defined to include the TML Agreement. It became a transaction document by operation of cl 2.3 of the Deed Varying Joint Venture Agreement of 21 December 1998 ('variation deed'). 'Participant' was defined to mean Norco, DF, PT (then known as QUF Trading Pty Ltd) and 'any transferee from a Participant'.
[32]
[18] Two further clauses of the TML Agreement should be pointed out. By cl 1.2(f) 'references to a party include references to its respective successors and permitted assigns'. By cl 22 the TML Agreement was said to bind 'the successors of each party ...'.
[33]
[19] The result of this convoluted course is that the Business Operation referred to in
[34]
cl 15 of the TML Agreement included the sale of milk and milk products utilising the licensors' trademarks. It was common ground that the entitlement to use those trademarks became an integral part of the joint venture business and a substantial asset of the joint venture. The entitlement substantially affected the products which the joint venture could sell. One of the consequences of the variation deed was an amendment to the JVA which changed the scope of the business operation so that, from the date of the variation deed, milk products sold by NDM would generally use the Pauls trademarks instead of the Norco and Dairyfields trademarks under which those products had previously been sold.
[35]
[20] So much is, I think, accepted by all parties. The respondents, however, emphasise the fact that the business operation was the sale etc. of milk by NDM which was, of course, a joint venture between Norco, PT and DF. Put shortly their point is that should Norco acquire the interests of the other two joint venturers consequent upon the operation of cl 9 of the JVA, Norco may conduct the business operation but NDM, the joint venture, would cease to do so. Therefore, it is submitted, the licensors would have the right to terminate the licence to use the trademarks pursuant to cl 15(b). This is said to be the plain consequence of the words which the parties chose to express their bargain. Clause 15(b) is said to be clear and unambiguous. When NDM, the joint venture, ceases to conduct the business operation the licensors will have a concomitant right to terminate the trademark licence. NDM, the joint venture, will cease to conduct the business operation when Norco buys out the interests of PT and DF in the joint venture.
[36]
[21] There is no doubt that if Norco exercises its option to purchase PT's and DF's interest in the joint venture, that venture will come to an end. The business, even if it be the Business Operation, which Norco will subsequently conduct will not be a joint venture and will not be the NDM joint venture. It will be Norco's own business. This, I think, is also accepted by all parties.
[37]
[22] The respondents point out that the TML Agreement is unlimited in duration. The licence is given 'subject to the terms of the agreement' and cl 15 describes the only circumstances in which the agreement might come to an end. Moreover by cl 3 NDM was given exclusive use of the trademarks within the defined territory. As well the agreement does not confer any consideration on the licensors for the grant of the licence. The agreement is binding because it is a deed. Any commercial return which the licensors might have obtained from the grant of the licence to use the trademarks would have accrued to their associated companies, PT and DF, from their share of the profits of the joint venture which utilised the trademarks. The return will disappear if PT and DF are no longer part of the joint venture.
[38]
[23] These considerations lead the respondents to submit that a 'commercial' approach to the construction of the agreement, as well as the literal meaning of the words found in cl 15(b), indicate that the respondents could not have intended that the TML Agreement should continue unless PT and DF were participants in the venture which conducted the sale of the trademarked milk. According to the respondents' submission:
[39]
'It offends commercial sense to think that the ... licensors would have contemplated Norco having the sole right to use the ... trademarks indefinitely, exclusively and for no consideration. ... Sense dictates that if companies in the Pauls group cease to be participants in the joint venture, without the consent of Pauls, the right to use the trademarks would be withdrawn.'
[40]
[24] The applicant's contention is that when one has regard to the language with which the parties expressed their bargain it is clear that 'NDM' does not necessarily mean a joint venture between Norco, PT and DF but extends to one of them, in this case Norco, who becomes the successor to or assignee from the others. The applicant points out that the licence to use the trademarks was granted to NDM, the three joint venturers and, by virtue of cl 1.2(f) and cl 22, the successors and permitted assigns of each of the joint venturers.
[41]
[25] I mentioned that the trademarks were an asset of the joint venture. Each joint venturer had its respective interest in that asset. Upon the exercise of the option contained in cl 9.2 of the JVA the Defaulting Participants are obliged to transfer their interest in the assets of the joint venture, including the trademarks, to the applicant as the non-defaulting participant. Norco will thus be the successor and assignee of PT and DF to their interests in the joint venture business operation and the assets of the joint venture. I have also pointed out that the JVA itself contemplated that the participants might assign their interests in the joint venture and its assets. The definition of Participant expressly includes that possibility.
[42]
[26] It should be noted that the permitted assigns in cl 1.2(f) of the TML agreement are not co-extensive with the Permitted Assignees who are a special limited class of persons specifically defined in the JVA. Norco will be a permitted assign from PT and DF should it exercise the option to acquire their interests.
[43]
[27] If one returns to cl 15(b) of the TML agreement one notes that the plain, literal, meaning of the clause does not limit 'NDM' to its original components. 'NDM' is not just Norco, PT and DF but those companies and/or their successors and permitted assigns. NDM consisted of the joint venturers regarded as Participants in the JVA, and their assignees. If two joint venturers should assign their interests in the joint venture and its assets to the third, that third will be NDM. It is true that it will not be a joint venture but Norco will satisfy the contractual definitions of NDM. As long as it continues to operate the Business Operation cl 15(b) will not come into operation.
[44]
[28] This, I think, is the ordinary literal meaning of the clause. The respondents' construction departs from the literal meaning. It limits 'NDM' to its composition as it was when the TML Agreement was first made and ignores or enervates the clauses which allow for changes in the composition of the joint venture. The respondents read cl 15(b) as though one substituted for 'NDM' the words 'Norco, PT and DF as joint venturers' and made the necessary adjustment to the number of the verb.
[45]
[29] Although I understood the respondents' submissions to be that NDM means a joint venture between Norco, PT and DF, it may be that their position would allow for an assignment by some or all of the joint venturers of their interest so that the identity of those constituting the joint venture might change over time. The respondents may thus accept that the NDM joint venture may not have as a participant any of Norco, PT or DF. As long as the subsequent participants were successors or permitted assigns of Norco, PT and DF there would be an identifiable NDM joint venture which, if it continued to conduct the Business Operations would be entitled to the Pauls trademarks.
[46]
[30] The respondents, however, insist that there must be a joint venture - that NDM must consist of more than one participant. This insistence limits the right of the joint venturers to assign their interest to another joint venturer. This is an unwarranted curtailment of the right of assignment conferred by the JVA and the TML Agreement. There is no rational basis for saying that the NDM joint venture will continue if the original joint venturers assign their interests to new venturers but that should two of them assign their interests to the third NDM will cease to exist and be unable to continue the Business Operations. The only basis for the insistence is the fact that when the agreement was made NDM was a joint venture.
[47]
[31] Clause 15(b) does not insist that the Business Operations be conducted by a joint venture. It requires only that 'NDM' continue to conduct the Business Operation. The parties' own elaborate agreements explain what is meant by 'NDM'. It is not limited to a joint venture between Norco, PT and DF. It is Norco, PT and DF and/or their successors or permitted assigns.
[48]
[32] The applicant's construction does not, in my opinion, give rise to an unreasonable result, or one which is unbusinesslike or unfair. The respondents' complaint that the TML Agreement should continue indefinitely giving Norco the exclusive right to use the trademarks for no consideration is met by the point that Norco will have to pay the fair market value for the right to use the trademarks indefinitely and exclusively in the defined territory. This is the effect of cl 9.3. An expert must value the fair market value of the assets to be assigned. The valuation will include the right to use the trademarks. The licensors will receive a capital sum by way of the fair market value for the grant of the licence to Norco, as the successor and assignee of PT and DF, to use the trademarks.
[49]
[33] Moreover I accept the applicant's submissions that the JVA, to which the TML Agreement is an adjunct, itself contemplated that should one of the joint venturers buy out the interests of the others by operation of cl 9.2 and cl 9.3 the
[50]
Non-Defaulting Participant should become entitled, on paying the price, to sole ownership of the joint venture business and assets which it would conduct in its own right. The price to be paid is very substantial: at least $40,000,000. The efficacy of those clauses and the rights which the agreement clearly meant to confer upon a Non-Defaulting Participant would be seriously compromised if a most valuable asset of the business operations could be withdrawn by the licensors, companies related to the defaulting participants, after the Non-Defaulting Participant had exercised the option and paid over some tens of millions of dollars. That result would be 'commercially unsound' and such as to make one think that the parties could not have intended that to be their bargain.
[51]
[34] I therefore conclude that should Norco exercise the option given it by cl 9.2 of the JVA to acquire the third and fourth respondents' interests in the joint venture that fact alone will not have the result that NDM will no longer cease to operate the business operation.
[52]
[35] The next dispute concerns the exclusivity of the use of the trademarks. The point may be dealt with shortly. The respondents' submission is that NDM has lost the exclusive right to use the trademarks. To understand the basis for this submission it is necessary to look at another agreement, the 'Norco Pauls Agreement' of
[53]
[36] That agreement was made between PT and Norco in contemplation of PT becoming a subsidiary of Parmalat and in the knowledge that cl 9.1 of the JVA would thereby become operable. The agreement was part of the parties' response to Parmalat's acquisition of PT, the purpose of which was to amend the JVA to prevent cl 9.1 becoming operable, and to adjust the rights of the parties inter se.
[54]
'(PT) will enter into a Brand User Agreement with the parties to the Joint Venture Agreement in terms similar to those outlined in Attachment 2, but with the exception that the term of the licence will be for an indefinite rather than a fixed term.'
[55]
'Pauls will licence to Norco Dairyfields Milk the following brands on the following terms and conditions:
...
Exclusivity
Norco Dairyfields Milk shall have an exclusive right to use the brands in the Territory subject to:
a) Norco Dairyfields Milk retaining the right to use the industry brands 'Lite White' ... in New South Wales. ...'
[56]
[38] On 5 May 1999 the licensor of the 'Lite White' brand, Australian Co-Operative Foods Ltd, terminated Norco's licence to use that brand in part of New South Wales. The respondents therefore contend that a pre-condition for the continued existence of the exclusive right to use the Pauls brands came to an end, and with it the exclusive right.
[57]
[39] The difficulty for the respondents is that the term on which they rely in Attachment 2 has no counterpart in the TML Agreement. I have set out the terms of cl 3 of that agreement. It confers an exclusive right to use the licensors' trademarks in the defined territory. That right is not subject to the condition found in Attachment 2. The loss of the right to use the 'Lite White' brand name is not a breach of any term of the TML Agreement nor does it constitute a ground on which the licensors might terminate the agreement or the licence to use the trademarks.
[58]
[40] The TML Agreement does not incorporate the terms of Attachment 2 by reference to it. It is not mentioned.
[59]
[41] The respondents have not sought rectification of the TML Agreement to include the pre-condition found in Attachment 2. Nor have they commenced proceedings for the specific performance of cl 7 of the Norco Pauls Agreement to compel Norco to make an agreement with a term similar to, or identical with, that found in the Attachment. For the purposes of these proceedings the parties are bound by the terms of the agreements they actually made and none of those agreements contains a term which would allow the respondents to terminate the TML Agreement because of Norco's loss of the right to use the 'Lite White' brand name.
[60]
[42] The last dispute concerns the price which Norco must pay to acquire PT's and DF's interest in the joint venture. The respondents' submission is that because, if it exercises the option, Norco will be acquiring the separate interests of PT and DF it must pay each of them the higher of $40,000,000 or the fair market value of each interest. On this view Norco must pay at least $40,000,000 to each of PT and DF. Norco contends that the separate interests of PT and DF in the joint venture which they must sell to it should the option be exercised must be aggregated and that the price payable is $40,000,000 or the fair market value for their combined interest in the joint venture, whichever is higher.
[61]
[43] To put the submissions in context it is helpful to recall that DF is a wholly owned subsidiary of PT. Those two companies together own 50 per cent of the business operation and assets of the joint venture. Norco owns the other 50 per cent. DF's share in the business operations and assets is 28 per cent and PT's is 22 per cent. If the respondents' submissions are correct Norco must pay at least $80,000,000 to acquire its joint venturers' half interest whereas they would have to pay only $40,000,000 to acquire Norco's half interest, if the roles were reversed. The submission also has the result that PT's 22 per cent in the business operations and assets is worth $40,000,000 at least, as is DF's 28 per cent interest and Norco's
[62]
[44] The respondents depend for their submission upon the literal terms of cl 9.2 and
[63]
cl 9.3 of the JVA as amended by the variation deed. Clause 9.2, it will be recalled, provided that 'each Defaulting Participant ... grants to the other Participants an option to purchase its Interest ... ('the Offered Interest').' Clause 9.3 provides that 'If an option becomes exercisable pursuant to clause 9.2 any sale pursuant to the exercise of that option will be on the basis that the price payable for the offered interest will be the higher of $40,000,000 or the fair market value of the offered interest in cash ...'.
[64]
[45] The respondents point out that each Defaulting Participant grants an option to purchase its interest to the Non-Defaulting Participant and that interest, designated the Offered Interest, is to be sold for a price of not less than $40,000,000. Both PT and DF are Defaulting Participants and each has granted to Norco an option to purchase its interest. Two options have become exercisable by Norco by which it may purchase the interests respectively of PT and DF. Clause 9.3 provides that the price payable for the, or each, offered interest is, at the least, $40,000,000.
[65]
[46] Read literally, and naturally, the JVA as amended has the meaning for which the respondents contend. The result is, however, so unreasonable that it is properly to be regarded as absurd. The parties cannot have meant that to be their bargain. Indeed it is plain from other documents that that was not their intention and cl 9.2 and cl 9.3 should not be construed as though it were.
[66]
[47] After the corporate changes which occurred in the respondents in 1998 and the consequential changes to the JVA it is clear that the parties regarded the joint venture as being one involving three parties, but two interests, Norco's and Parmalat's. This is clear from the Norco Pauls Agreement which provided in cl 5:
[67]
'The parties agree to amend the Joint Venture Documents ... to give effect to all amendments required as a consequence of the matters contemplated by this Agreement. These matters will include ...:
...
(c) amending all reference in the Joint Venture Documents to record the Participants' Interest as 50% each for Norco and Pauls;
...
(h) adding the words "the higher of $40,000,000.00 or" ... [in] the first line of clause 9.3(a).'
[68]
[48] 'Pauls' was a reference to PT and was defined to include any related body corporate to Pauls. DF became, as the parties contemplated it would, a related corporation.
[69]
[49] To give effect to the intention that the joint venture should be an equal one between the two interests, cl 2.5 of the variation deed provided:
[70]
'The parties agree to change the number of Directors and Voting Directors so that:
(a) Norco will have 3 Directors with 2 Voting Directors;
(b) Dairyfields will have 2 Directors with 1 Voting Director; and
(c) Pauls will have 1 Director with 1 Voting Director;
to which end:
...
(b) clause 4.4(a) is amended by changing the maximum number of Directors from nine ... to six ...'
[71]
'The parties agree that for the purpose of Clause 9.1 if either of Pauls or Dairyfields are (sic) Defaulting Participants, the other of them shall also be deemed to be a Defaulting Participant, to which end ...'
[72]
[51] One thus has a situation in which two related companies, one a wholly owned subsidiary of the other, between them own 50 per cent of the business and assets of the joint venture. The other half interest is held by a third company. There is no rational basis for thinking that the value of the half interest owned by Norco is not worth exactly the same as the half interest which is owned in the aggregate by PT and DF. When one of the joint venturers becomes a Defaulting Participant within the meaning of cl 9 of the JVA it must grant an option to the Non-Defaulting Participant to purchase its interest in the joint venture. The grant of the option is automatic: it occurs upon a party to the joint venture becoming a Defaulting Participant. If either PT or DF becomes a Defaulting Participant the other automatically acquires the same status. Both must then grant an option to Norco to acquire its interest. Norco will only ever be offered the other half interest in the joint venture. There will never be a position where Norco is offered the interest of PT only, or of DF only.
[73]
[52] The evident purpose of these provisions was to ensure that in circumstances such as have occurred PT and DF together would be the Defaulting Participant and would offer their combined interest of 50 per cent in the joint venture to Norco, and that the minimum price of a 50 per cent interest whether Norco's or PT/DF's would be $40,000,000.
[74]
[53] The result is conveniently achieved by regarding the 'Offered Interest' referred to in cl 9.2 as being the combined interests of PT and DF when it is they who become Defaulting Participants.
[75]
1. the Trade Mark Licence Agreement dated 30 November 1998 is not determinable by the first and second respondents pursuant to cl 15(b) by reason only of the applicant exercising an option to acquire the interests of the third and fourth respondents in the joint venture described in the Joint Venture Agreement dated 27 June 1996 pursuant to cl 9.2 and cl 9.3 of the said agreement;
2. the applicant's and the third and fourth respondents' right to use the trademarks, described in the Trade Mark Licence Agreement of 30 November 1998, exclusively in the territories defined in that agreement is not conditional upon the applicant retaining the right to use the 'Lite White' brand name; and
3. the price to be paid by the applicant for the acquisition of the combined interests of the third and fourth respondents in the said joint venture, pursuant to cl 9.2 and cl 9.3 of the said Joint Venture Agreement is $40,000,000 or the fair market value of those interests determined in accordance with the terms of the agreement, whichever is the higher.
Parties
Applicant/Plaintiff:
_Norco Co-Operative Ltd
Respondent/Defendant:
Parmalat Australia Ltd & Ors_
Cases Cited (3)
(1973) 129 CLR 99
(1990) 20 NSWLR 310
(1985) 60 ALJR 1
In 1998, Pauls was acquired by the Italian dairy group, Parmalat Finanziaria SpA. Around the same time, Pauls acquired Dairyfields, converting it from a co-operative to a public company, now known as Dairyfields. Pauls was renamed as Parmalat Australia Ltd. As part of the Pauls and Dairyfields takeover, Norco negotiated an increase in its equity in the NDMJV from 45% to 50%, which effectively became a 50:50 joint venture between Norco and Parmalat, and it was renamed the NPJV. Norco and Parmalat also agreed that the NPJV would sell market milk under the "Pauls" brands rather than the "Norco" and "Dairyfields" brands. The NPJV was granted a trade mark licence agreement by Pauls for this purpose with exclusive rights to the Pauls brands in the NPJV Territories.
In 1998, the dairy industry was deregulated in NSW and Queensland so that the NPJV lost its exclusive statutory rights to sell milk in South East Queensland and Northern NSW. Similarly, Parmalat lost its monopoly rights in Brisbane. Competitors have subsequently moved into the Brisbane market decreasing Parmalat's share. The NPJV has also lost market share to competitors.
The business of the NPJV now is essentially the sourcing, processing and selling of milk in the Territories, as defined in the Joint Venture Agreement. The Territories are essentially the previous "monopoly" areas of South East Queensland and Northern NSW, although Norco and Parmalat have expanded the Territories into Newcastle and the Central Coast. Expansion of the Territories under the Joint Venture Agreement is only possible with the unanimous consent of the Participants. Due to undertakings given to the Australian Competition and Consumers Commission at the time the NPJV was formed, there are express provisions in the Joint Venture Agreement (Clause 3) allowing the NPJV to compete against any of its individual Participants and allowing individual Participants to compete against the NPJV.
Approximately 50% of the milk processed by the NPJV is sourced under a Supply Agreement from milk produced by Norco's dairy farmer members. The other 50% is sourced under a separate Supply Agreement by farmers associated with Parmalat, which include all the farmers who previously owned the Dairyfields Co-operative.'