Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd - [2006] FCAFC 40 - FCAFC 2006 case summary — Zoe

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Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd

[2006] FCAFC 40

Federal Court of Australia (Full Court)|2006-07-01

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Court

Federal Court of Australia (Full Court)

Decision date

2006-07-01

Source

Original judgment source is linked above.

Judgment (61 paragraphs)

[1]

Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40

[2]

APPEAL - exclusive sub-licence of trade mark - sub-licensor sold business to trade competitor of sub-licensee - sale included assignment of the benefit of the sub-licence - no novation of sub-licence - validity of assignment of the sub-licence - sub-licensee in breach of sub-licence - whether assignee obtained the contractual right to terminate for breach

[3]

CONTRACT - assignment of contractual rights - whether all contractual rights, powers and privileges of assignee are proprietary in character and are prima facie assignable - extent to which individual rights, powers and privileges separately assignable CONTRACT - assignment of contractual rights - whether sub-licensor's identity was material to the contract or its performance - construction of the sub-licence - assignment precluded without the consent of the sub-licensee CONTRACT - assignment of contractual right - whether contractual power to terminate for breach severable and capable of independent assignment - whether an integral part of the sub-licensor's bundle of rights CONTRACT - breach of sub-licence - whether purported termination for breach effective - whether sub-licensee's conduct repudiatory - waiver or estoppel TRADE MARKS - assignment of benefit of exclusive sub-licence - whether effective - construction of the sub-licence - whether it precluded assignment without sub-licensee's consent Conveyancing Act 1919 (NSW) s 12 Property Law Act 1958 (Vic) s 134 Trade Marks Act 1995 (Cth) s 8, s 92(4)(b) 36 and 37 Vic c.66 ('the Judicature Acts') s 25(6) Anning v Anning (1907) 4 CLR 1049 cited Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 cited Loxton v Moir (1914) 18 CLR 360 cited Don King Productions Inc v Warren [2000] Ch 291 cited Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 cited Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 113 ALR 225 cited Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 cited Peters v General Accident Fire & Life Assurance Corporation Ltd [1938] 2 All ER 267 cited Moore v Collins [1937] SASR 195 cited Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (1992) 57 BLR 57 cited Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 cited Jack v Smail (1905) 2 CLR 684 cited Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458 cited Olsson v Dyson (1969) 120 CLR 365 cited Vickery v Woods (1952) 85 CLR 336 cited Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 cited Bruce v Tyley (1916) 21 CLR 277 cited British Wagon Co v Lea & Co (1880) 5 QBD 149 cited Davies v Collins [1945] 1 All ER 247 cited Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385 cited Yanner v Eaton (1999) 201 CLR 351 cited Inglis v The Trustees of The Sailors' Snug Harbour in the City of New York 28 US 99 referred to Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 considered Re Davies & Co; Exp Rawlings (1888) 22 QBD 193 cited Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 cited Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 cited National Carbonising Co Ltd v British Coal Distillation Ltd (1936) 54 RPC 41 cited Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 cited Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576 cited Pacific Carrier's Ltd v BNP Paribas (2004) 218 CLR 451 cited L/M International Construction Inc v The Circle Ltd Partnership (1995) 49 Con LR 12 cited Denham Bros Ltd v W. Freestone Leasing Pty Ltd [2004] 1 Qd R 500 cited Shevill v Builders Licensing Board (1982) 149 CLR 620 cited Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 cited Satellite Estate Pty Ltd v Jacquet (1968) 71 SR (NSW) 126 cited DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 cited Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 cited Summers v Commonwealth (1918) 25 CLR 144 cited Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11 cited Beatty v Guggenheim Exploration Co 122 NE 378 (1919) cited Kammins Ballroom Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 cited GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 cited Commonwealth v Verwayen (1990) 170 CLR 394 cited Northwestern Fire & Marine Insurance Co v Pollard 238 P 594 (1925) cited Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 cited Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India [1990] 1 Lloyd's LR 391 cited Bay of Plenty Electricity Ltd v Natural Gas Co Energy Ltd [2002] 1 NZLR 173 cited Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 cited Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 cited Torkington v Magee [1902] 2 KB 427 cited

[10]

REASONS FOR JUDGMENT FINN and SUNDBERG JJ 1 The primary issue in this appeal is whether, if at all, any contractual rights had by Sara Lee Apparel (Australasia) Pty Ltd ("Sara Lee") under its Sub-Licence agreement ("the Sub-Licence") with the respondent, Underworks Pty Ltd ("Underworks"), were assigned effectively to the first and second appellants ("the two Pacific Brands companies") and, if so, what were the actual rights so assigned. The answer to this question contrives what are consequential issues in the appeal which relate to the purported exercise by the companies of rights which it is claimed are able to be asserted directly against Underworks. 2 The factual setting giving rise to the parties' dispute is distinctive and complex. Put shortly, Sara Lee was the licensee of both the "King Gee" and "Stubbies" trade marks. The proprietor of the marks, Saramar LLC, was itself a member of the Sara Lee group of companies. In November 2000, Sara Lee granted Underworks an exclusive right in Australia to use the King Gee marks in relation to men's underwear and socks and the Stubbies mark on children's socks and underwear for a period of five years in the first instance. 3 In February 2001 Sara Lee sold its Australian apparel business to Pacific Dunlop Ltd ("Pacific Dunlop"). As part of that sale, Sara Lee assigned to Pacific Dunlop the benefit of designated "Business Contracts" (which included the Sub-Licence). At about the same time Saramar assigned its trademarks to P D Licensing Pty Ltd, a company in the Pacific Dunlop group. That assignment was made subject to the rights of licensees under existing licences (including the Underworks' Sub-Licence). 4 On 30 November 2001, Pacific Dunlop Ltd sold its "Business Assets" (which included its contracts and intellectual property rights) to various companies in the Pacific Brands group. The benefit of the Sub-Licence (i) as it related to the King Gee marks, was assigned to Pacific Brands Sports & Leisure Pty Ltd ("Pacific Brands Sports") and (ii) as it related to the Stubbies mark, to Pacific Brands Clothing Pty Ltd ("Pacific Brands Clothing"). On the same day P D Licensing assigned the King Gee and Stubbies trade marks to Pacific Brands Sports. The two companies can be referred to collectively in these reasons save where differention is necessary. 5 Despite endeavours by Pacific Brands and by Sara Lee to have the Sub-Licence novated, Underworks would not agree to any novation on the terms offered. Pacific Brands Sports subsequently alleged that Underworks was in breach of the Sub-Licence and that it as an assignee of Sara Lee's rights under that contract was entitled to - and did - terminate the Sub-Licence both at common law and by virtue of an express right to terminate contained in the Sub-Licence. 6 It will be necessary to refer in some detail below to the terms both of the Sub-Licence and of the sale agreements by virtue of which Pacific Brands purportedly exercised the rights to terminate. To foreshadow what will later be said, we have concluded that while the Sub-Licence on its proper construction did not expressly preclude an assignment by Sara Lee of its rights under it, the nature of its agreement with Underworks on its proper construction precluded Sara Lee from assigning the particular rights the breach of which were relied upon by the two companies to terminate the Sub-Licence.

[11]

THE SUB-LICENCE 7 Underworks was established to carry on the business of importing, distributing and supplying underwear and socks. One of its two shareholders and the controller of its other corporate shareholder, had previously held senior positions in Pacific Dunlop Ltd. 8 At the time the Sub-Licence was entered into, Sara Lee appears not to have been using the King Gee mark in relation to underwear or socks (save for work socks), though it was exploiting the mark extensively in relation to clothing and in particular work wear. It was not using the Stubbies mark at that time to produce socks or underwear. 9 The Sub-Licence was entered into on 15 November 2000 and had a commencement date of 1 January 2001. It was for a term of 5 years unless earlier terminated as provided by clause 18 of the Agreement: see below. Clause 2 of the Sub-Licence gave Underworks an exclusive Sub-Licence to use the King Gee and Stubbies marks to manufacture, sell and distribute branded underwear and socks to designated retailers and resellers in Australia and New Zealand, but "with no rights to assign (subject to clause 14), charge or Sub-Licence" the licence so given. 10 Clause 14 provided for present purposes that the Sub-Licensee could not, without the written consent of the Sub-Licensor, assign, sell, lease, transfer or otherwise dispose of or encumber any of its rights and obligations under the Agreement. The Agreement did not contain a like prohibition on assignment etc by the Sub-Licensor. The "Interpretation" provision of the Agreement (cl 1.2) stipulated that: "(d) A reference to a party to this Agreement or any other agreement or document includes the party's successors and permitted substitutes or assigns." 11 The Sub-Licensee acknowledged that the Sub-Licensor was the exclusive licensee of "the Licensors" (sic), i.e. Saramar LLC: cl 3.1; it recognised the "great value of the goodwill" associated with the licensed marks: cl 3.2; it agreed to "use" the two licensed marks only as prescribed (cl 4.1), to "exploit the Products (i.e. the respective socks and underwear) … to the best advantage of the parties" (cl 4.3) and not to be a party to any act likely to prejudice the marks or commercial rights to which Saramar LLC or the Sub-Licensor were entitled (cl 4.4). 12 Sub-clauses 5.1 and 5.2 provided together for the payment of royalties calculated as a percentage of net sales and for a minimum royalty per annum. Clause 5 imposed a series of further obligations on the Sub-Licensee and gave rights to the Sub-Licensor which were designed in varying ways to secure both the integrity of the royalty payment regime and the Sub-Licensor's return on the marks. These included the following: "5.5 The Sub-Licensee will keep accurate and complete books and records of account concerning its manufacture, promotion, sale and distribution of the Products and within 60 days of the end of each royalty year during the Term will send to the Sub-Licensor a certificate signed by its accountant verifying the Net Sales during that preceding royalty year. The Sub-Licensee will permit its books and records of account concerning its manufacture, promotion, sale and distribution of the Products to be examined once per annum upon reasonable notice to the extent necessary to verify records, statements and net proceeds, such inspections to be made by an independent accountant appointed by the Sub-Licensor PROVIDED THAT, if such inspection reveals an underpayment of royalties by the Sub-Licensee of in excess of 2%, the Sub-Licensee shall pay all the Sub-Licensor's costs and expenses in conducting such inspection. 5.6 In addition to all other rights and remedies which the Sub-Licensor may have, the Sub-Licensor may charge interest at a rate equal to 2% above the then current commercial lending rate of the Sub-Licensor's bank in the Territory for overdrafts in excess of A$100,000 on all monies then outstanding on the due date for payment. 5.7 In the event that in any two consecutive years the Sub-Licensee fails to achieve sales in any category which result in payments of royalty in excess of the minimums as provided for in clause 5.2 ("minimum royalties"), the Sub-Licensor may at its option and without any liability to the Sub-Licensee or compensation terminate this Sub-Licence in respect of that category by 3 month's notice in writing to the Sub-Licensee": emphasis added. The royalty payments were to be made in such manner as the Sub-Licensor directed. 13 Under cl 6.1 the Sub-Licensor was required to furnish to the Sub-Licensee from time to time and at the Sub-Licensee's cost, "such assistance and advice as the Sub-Licensor shall deem helpful" in the Sub-Licensee's promotion and sale of the branded products. 14 Clause 8 warrants quotation in full because of its significance in this appeal. It provides: "8 CONSULTATION AND MARKETING PLAN 8.1 In order for the Sub-Licensor to assess the way in which the Sub-Licensee proposes to use the Licensed Marks, the Sub-Licensee shall prepare and submit prior to 30th November 2000 to the Sub-Licensor for its review a marketing plan for the Product containing particulars of all labels, advertising, promotional and other related material together with schedules for proposed production and sales targets, sales release dates, methods of distribution and sale, promotional expenditure and details of any other marketing programs (but not including third party trading term details). A detailed explanation of the proposed manner of representation of the Licensed Mark in the promotional and advertising program shall be included for the consideration and approval of the Sub-Licensor and pending such approval no such use of the Licensed Mark shall be made. 8.2 Thereafter prior to 15 June in each year, the Sub-Licensee shall in respect of the following year prepare and submit a marketing plan in similar format for the Sub-Licensor's consideration. 8.3 The Marketing Plan is to include a description of the advertising and promotional concepts, which are not to be used pending the Sub-Licensor's written approval. 8.4 Should at any time the Sub-Licensor become aware of an actual or proposed use of the Licensed Marks on a Product or products which is inconsistent with a concept approval, or is otherwise inconsistent with the manner in which it desires the said marks to be portrayed and an identical use has not previously been approved, is shall provide written notice of its concern to the Sub-Licensee requiring that the use cease. Unless within 21 days of receipt of such notice the Sub-Licensee: (a) obtains the Sub-Licensor's approval to such use; or (b) confirms in writing that the use has ceased and provides an undertaking that the use will not be repeated; the Sub-Licensor may terminate this Sub-Licence. 8.5 In order to review brand positioning and ensure that the Sub-Licensor's reputation in its products and brands is maintained, the Sub-Licensee shall at its own cost submit to the Sub-Licensor concept samples of each line of Product to be manufactured or sold and to be marketed by the Sub-Licensor together with all related advertising, packaging, labels and promotional materials using the Licensed Marks for approval. 8.6 The Sub-Licensee agrees to affix or apply to all Products labels bearing or using the Licensed Marks strictly in accordance with the Sub-Licensor's reasonable directions. The Sub-License shall not proceed with the use of the Licensed Marks on the Products or related advertising, packaging, labels and promotional materials without first obtaining the prior written approval of the Sub-Licensor. 8.7 The Sub-Licensee shall only use the Licensed Marks on products, packaging, labels, advertising and promotional materials in the form and format approved in writing by the Sub-Licensor PROVIDED THAT the Sub-Licensee may indicate its corporate name as manufacturer of the Products with the notation that it does so under sub-licence from Sara Lee Apparel (Australasia) Pty Ltd. Apart from any sub-brands which the Sub-Licensor approves may be used in association with the Licensed Marks, no other trade marks or trade marks of third parties are to be used in association with the Licensed Marks. 8.8 For the purposes of the Sub-Licensor's approvals as required for the purposes of Clause 8, if the Sub-Licensor does not object to such use within 35 days, the Sub-Licensee will provide notice in writing that the absence of receipt of a written notice of objection within a further seven (7) days that approval will be deemed to have been given. Should the Sub-Licensee receive no objection within that time, approval will be deemed to have been given." 15 The agreement imposed reciprocal duties of confidentiality in respect of all commercially sensitive information made available by the Sub-Licensee, the Sub-Licensor and the Licensor: cl 9. 16 Clause 10 noted that the Licensor and the Sub-Licensor were committed to having their products produced in manufacturing facilities that operate under responsible, safe and humane conditions. To that end the clause stipulated that the Sub-Licensee was only entitled to manufacture products in facilities previously approved by the Sub-Licensor in writing. 17 Under cl 11 the Sub-Licensee acknowledged "receipt of a copy of Sara Lee Corporation's Global Business Standards and Supplier Selection Guidelines ("the Guidelines"). We note in passing that the Sara Lee Corporation is a United States company registered in the State of Maryland; it guaranteed Sara Lee's obligations to Pacific Dunlop under the Sara Lee-Pacific Dunlop sale agreement of February 2001; and it would appear to be the principal company of the "Sara Lee group". The Sub-Licensee was obliged by cl 11 to provide the Guidelines to any and all vendors and manufacturers appointed under the Agreement. The Licensor was to provide the Sub-Licensee with a sufficient number of "copies of the Guidelines" at no cost to the Sub-Licensee "in the local language(s) of the management and employees producing the product". The Sub-Licensee warranted and gave covenants, inter alia, that it was in compliance with the Guidelines and would remain so. 18 Clause 12 required that each facility used to produce products be independently audited by a firm approved by the Sub-Licensor "for compliance with these or such similar Guidelines as Sara Lee Corporation may require from time to time". Audits were to be conducted annually and a report was to be provided to the Sub-Licensor. The clause authorised the Sub-Licensor to require the making of changes and improvements at any facility that were indicated in the report and if such were not completed within 120 days the Sub-Licensor was entitled to require the cessation of production at the facility concerned or, at its discretion, to terminate the Agreement. Under cl 13, the Sub-Licensor retained the independent right, with or without notice, to conduct its own or independent third party inspection and audit of any manufacturer "for compliance with the Guidelines or such similar guidelines as Licensor may establish or be subject to from time to time". 19 Clause 18 provided for present purposes that: "18 TERM AND TERMINATION 18.1 This Agreement is effective from the Commencement Date for a period of five (5) years unless earlier terminated as provided by this Clause 18. 18.2 The Sub-Licensor may terminate this Agreement immediately upon written notice to the Sub-Licensee: (a) if the Sub-Licensee commits a breach of any term or condition of this Agreement and does not remedy the breach as reasonably required by the Sub-Licensor within 30 days after written notice of the breach and the required remedy has been given to it by the Sub-Licensor; (b) if there is a change of more than 30% in the shareholding in the Sub-Licensee in any year; (c) if there is a change in the ownership of the issued shares in the Sub-Licensee whereby in excess of 30% of such issued shares are held by or on behalf of any person or persons who the Sub-Licensor's reasonably held opinion is or are in competition with the Sub-Licensor in any of its product markets." 20 The Sub-Licence provided that no waiver of rights, powers or remedy would be binding unless in writing: cl 22. 21 Sara Lee's registered office was in New South Wales. Underworks' was in Victoria. The governing law of the Agreement was stipulated to be that of New South Wales.

[12]

THE SARA LEE - PACIFIC DUNLOP SALES AGREEMENT 22 Included in the assets Sara Lee sold to Pacific-Dunlop by the agreement of 26 February 2001 were all of its right, title and interest in the Underworks Sub-Licence. The following are the only provisions of this Agreement which need be noted. The Sub-Licence was a "Business Contract" for the purposes of the Agreement: cl 1.1. Clause 11, dealing with novation or assignment of business contracts, provided insofar as presently relevant: "11.1 (a) … (b) Assignments without consent of Non-Listed Business Contracts The Vendor hereby assigns to the Purchaser with effect on and from Completion the benefit of those of the Business Contracts not listed in Schedule 6 in respect of which assignments are permitted without the consent of the other party to the contract. (c) Assignments with consent of Non-Listed Business Contracts The Vendor must use its best endeavours (excluding paying money or providing other valuable consideration to or for the benefit of any person) with the co-operation of the Purchaser to assign to the Purchaser with effect on and from Completion the benefit of those of the Business Contracts not listed in Schedule 6 in respect of which assignments are permitted only with the consent of the other party to such contract, such assignment to have effect on and from Completion." The Sub-Licence was not listed in Schedule 6 for the purposes of these subclauses. 23 Under subclause 11.4, Pacific-Dunlop assumed the responsibility of complying (inter alia) with all of Sara Lee's obligations under Business Contracts assigned under cl 11.1 and of indemnifying Sara Lee in respect thereof. 24 Clause 20.8 of the Agreement specified that each parties' rights and obligations were personal to it and that no party could assign or transfer any of its rights or obligations under the Agreement without the prior written consent of each other party. 25 The governing law for this agreement was that of Victoria. 26 Notice of the Sale Agreement was given to Underworks on or about 13 March 2001.

[14]

ASSIGNMENT OF CONTRACTUAL RIGHTS - APPLICABLE PRINCIPLES 28 There no longer being any claim that the Pacific Brands companies became parties to the Sub-Licence in lieu of Sara Lee by reason of novation, the sole basis upon which the appellants assert any entitlement to exercise rights under or in relation to the Sub-Licence is that, in the events which have happened, they are assignees of Sara Lee's rights as Sub-Licensor including its rights to terminate the Sub-Licence under cl 18.2 and at common law. 29 There is quite basic disagreement between the parties not only as to the legal effect of the Sub-Licence and the two sales agreements, but also as to the principles by which that effect is to be judged. The causes of their disagreements are various but the most fundamental relates to how one determines whether the nature of a contractual right is such that it is capable of being assigned at all. 30 This said, there is one preliminary matter about which there is agreement. It is that if any of Sara Lee's rights were assigned at law, their assignment was effected under the provisions of s 12 of the Conveyancing Act 1919 (NSW)which deals with the assignment at law of debts and choses in action. The apparent reason for this agreement is that New South Wales law was the law governing the Sub-Licence so that, notwithstanding that the instrument (the Sara Lee-Pacific Dunlop sales agreement) embodying the assignment was governed by Victorian law, the assignment itself was governed by the New South Wales Act: cf Anning v Anning (1907) 4 CLR 1049 at 1061. It is unnecessary to enter upon the correctness of this notwithstanding the great uncertainty surrounding the choice of law rules to be applied to the assignment of debts and choses in action: see Tilbury, Davis and Opeskin, Conflict of Laws in Australia, 943 (2002); Nygh and Davies, Conflict of Laws in Australia, [32.24] - [34.28] (7th ed 2002). We would merely note that, for choice of law purposes, the question whether a particular contractual right is assignable is logically distinct from that whether a right which is assignable has been assigned at law: cf Dicey & Morris, The Conflict of Laws, Vol 2, 32-023 (13th ed, 2000). For present purposes the applicable common law is the common law of Australia. And there are no relevantly operative differences between the provisions of s 12 of the Conveyancing Act 1919 (NSW)and of s 134 of the Property Law Act 1958 (Vic). 31 In an article entitled "The History of the Treatment of Choses in Action by the Common Law" (1920) 33 Harv L Rev 997, Holdsworth observed (at 1030) that "it is probable that a branch of law which comes at the meeting place of the law of property and the law of obligation can never be anything but difficult to formulate and apply". The assignment issue raised in this appeal is testament to this, and is made the more so by the relative absence of Australian case law on the assignment of contractual rights: cf in England, Furmston (ed), The Law of Contract, 6.286 ff (2nd ed, 2003); in the United States, Corbin on Contracts, Interim Ed, vol 9, Ch 48; Farnsworth on Contracts, Ch 11 (3rd ed, 2004). 32 By way of background, it is appropriate to begin with a number of relatively non-contentious propositions. First, it is well accepted that assignable contractual rights are choses in action; are a species of personal proprietary right; and can be transferred to a third party at law or in equity in accordance with the formal rules governing the transfer of such rights: see Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 26; Loxton v Moir (1914) 18 CLR 360 at 379. Secondly, while it is not legally possible to assign the burden of a contract (i.e. the obligation to render performance), it may be possible to assign (a) the entire benefit of a contract (i.e. the right to receive performance): Don King Productions Inc v Warren [2000] Ch 291 at 318 ("Don King"); (b) if a right under a contract is separate and severable, such a separate and severable right: cf Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 at 449-450; or (c) if some only of the rights under a contract are assignable, those rights. "[A]ssignability is not a matter of all obligations arising under a contract or none at all": Don King, above, at 319. Thirdly, a contract may expressly or impliedly authorise assignment of rights in a contract which would not otherwise be assignable: Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 113 ALR 225 at 235 ("Devefi v Mateffy"); or, conversely, may expressly or impliedly prohibit assignment of rights otherwise prima facie assignable: Don King, above, at 319. "Such contractual provisions are legally effective" as between the contracting parties: Don King, ibid; Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 103 ff ("Linden Gardens Trust"). Fourthly, while the product to be derived from a contractual performance (the "fruits of performance") may be assigned; Devefi v Mateffy, above, at 234; the right to that performance may, nonetheless, be unassignable because, having regard to the nature of the contract and the subject matter of the contractual right in question, that right is personal in the sense that the identity of the contractual obligee is material to the contractual relationship itself (i.e. it is a "personal contract": Peters v General Accident Fire & Life Assurance Corporation Ltd [1938] 2 All ER 267 at 270; Moore v Collins [1937] SASR 195; or to the contractual performance to be rendered: Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (1992) 57 BLR 57 at 77 (contract requiring a party to act on the other's instructions); see generally Seddon and Ellinghaus, Cheshire and Fifoot's Law of Contract (8th Aust ed, 2002), [8-6]; Furmston (ed), above, 6.299 ff; Chitty on Contracts, Vol 1 19-053 ff (29th ed, 2004); Farnsworth, above, s11.4. A contractual right, though, will not be personal if, construed in its setting, "it can make no difference to the person on whom the [corresponding] obligation lies to which of two persons [i.e. assignor or assignee] he is to discharge it": Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at 668. Fifthly, seemingly, a contractual right may itself be of such a personal character that it cannot properly be characterised as property: cf Jack v Smail (1905) 2 CLR 684 at 704-705; but it is not clear whether this proposition has salience only in contexts other than assignment of such a right, e.g. insolvency, because of the proposition immediately preceding this which relates expressly to assignments of "personal" contractual rights. Sixthly, the assignee of a contractual right under a legal assignment is entitled, as owner of that right, to take action in respect of it: e.g. Conveyancing Act 1919 (NSW), s 12. Seventhly, a third party may become a "substituted contracting party" by novation of the original contract. Novation will, ordinarily, require the agreement of the original and the substituted party although the original contract itself may, on its proper construction, authorise a party to substitute a contracting party in its place without need for a further tri-partite agreement: see Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458 at 460. On novation, though, there is no assignment of rights and obligations, but rather the creation of new rights and obligations in a new contract: Olsson v Dyson (1969) 120 CLR 365 at 388; Cheshire & Fifoot's Law of Contract, above, [8.45] ff. Eighthly, a contractual obligation cannot be assigned without the consent of the other contracting party: Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at 668. This, for practical purposes, requires novation of the original contract; Furmston, "The Assignment of Contractual Burdens" (1998) 13 Jo Contract Law 42; see also Vickery v Woods (1952) 85 CLR 336 at 345; Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 at 491-493. Ninthly, the delegation of performance of contractual obligations is permissible where the obligations assumed do not require personal performance but only the producing of a result: Bruce v Tyley (1916) 21 CLR 277; British Wagon Co v Lea & Co (1880) 5 QBD 149. In such cases perfect performance by the delegate will discharge the delegating contractor's obligation, although that contractor will remain liable unless and until such performance is rendered. "Whether or not in any given contract performance can properly be carried out by the employment of a sub-contractor must depend on the proper inference to be drawn from the contract itself, the subject matter of it, and other material surrounding circumstances": Davies v Collins [1945] 1 All ER 247 at 250. 33 It will be necessary to make additional reference to legal principles relating to assignments when considering the parties contentions on the effect of the assignment of Sara Lee's rights under the Sub-Licence.

[16]

(i) What rights were prima facie assignable? 35 The primary judge's conclusion on this matter, which is challenged by the appellants, is encapsulated in [18] of his reasons. Having previously indicated that a right to rescind or terminate a contract is not a chose in action but is a personal right or privilege which can be exercised by the person in whom it is vested, his Honour held: "To the extent that Pacific Brands founds its claim upon the assignment of the sub-licence giving to it the right to terminate the sub-licence, that claim must fail. Pacific Brands did not as a result of the assignment acquire the right or power to terminate the sub-licence, a sub-licence to which it is not a party. Put another way, while the "benefit" of the sub-licence was assigned to Pacific Brands with the result that it did acquire certain rights (such as the right to receive the royalty) the right to rescind the sub-licence for breach was not one of the 'benefits' that went across. In the view that I hold, the following powers or privileges were also incapable of assignment for much the same reason: the power to review the marketing plan conferred by cl 8.1; to give reasonable directions in relation to the use of product labels conferred by cl 8.6; to approve packaging and the like given by cl 8.7; to approve manufacturing facilities under cl 10; to conduct audits under cl 12; and to exercise the right of inspection and quality control conferred by cl 13." 36 The parties' disagreement in the appeal over this conclusion is in substance a disagreement as to how one determines whether contractual rights are prima facie assignable at all. 37 Underworks' contention, which reflects the primary Judge's conclusion, is that only those contractual rights which are proprietary in character are capable of being assigned. Accordingly it must first be asked of each allegedly assigned right whether it had that character. If it did not, then notwithstanding that it may have provided a benefit to the obligee (i.e. Sara Lee), it was not assignable by that party. In the case of the Sub-Licence, Underworks' submission is that almost all of Sara Lee's rights (we use the term here to encompass Sara Lee's "powers and privileges") cannot be said to be proprietary in character as his Honour so held. It apparently is conceded, as the primary judge found, that the right to be paid royalties could be assigned. 38 The Pacific Brands' contention is that, personal contractual rights apart, all contractual rights are prima facie assignable. It is said that, having regard to the flexibility and versatility of the concept of choses in action, it is erroneous to determine questions of assignability of contractual rights by identifying the benefits conferred upon a party by particular clauses of a contract in isolation and labelling them as either clauses giving rise to a chose in action or not. The individual terms of a contract are interdependent and cannot be disembodied from the contract itself. The relevant enquiry, as put by the appellants, is whether the contract, considered as a whole, confers rights of action or rights enforceable by action. If it does (as all contracts do) the complete chose in action is the aggregate of legal rights, privileges, powers and immunities or the sum of the jural relations under the contract. 39 There is in our view a number of objections to the atomistic approach propounded by the primary judge and by Underworks. First, in the same way that new species of chose in action have over time been added to the list of choses recognised by law, the respondent's approach seeks to have each individual contractual right or power examined as if it were a discrete, independent and severable right or power for the purpose of determining whether it too will be added to the laws list of incorporeal property, i.e. of choses. The error in this is that the relevant chose itself in a case such as the present (given what was intended to be assigned) was the benefit of the contract as such, i.e. the bundle of rights and powers created by the contract of which Sara Lee was obligee or donee. That chose (or a separate and severable right or power that was part of it, e.g. the right to royalties) was prima facie assignable in whole or possibly in part: cf Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385. There is nothing unusual in characterising the totality of a bundle of rights and powers as a chose in action as a share in a company well illustrates. 40 Secondly, the process of disaggregation required by the primary judge's and Underworks' approach, requires the individual rights and powers to be dissociated from the body of the contract from which they have their connections inter se and they draw their vitality. Some individual rights may, for assignment purposes, be dealt with separately from the others because they are sufficiently discrete and independent of those others. The right to be paid royalties may fall into this category. Nonetheless, others may not be able to be so dealt with distinctly, not because they are not part of a chose in action, but because the contract itself, on its proper construction, does not attribute an independent life and vitality to them: see Furmston (ed), above, at 6.288. They are simply inseparable parts of a composite whole. This, in our view, is particularly the case of those contractual rights which take the form of powers. Characteristically, they have regulatory functions in a contract (often to protect and preserve a party's interest in or in consequence of a contract as was the case in the Sub-Licence in respect of many of Sara Lee's powers, e.g. its powers of approval, audit, inspection etc.). As a rule, they cannot be dealt with separately from the interest they so serve. Nonetheless, they are prima facie assignable in their totality as part of any assignment of one party's benefit of a contract. They are, simply, part of that chose. For this reason we would disagree with his Honour's treatment of what he describes as the "powers and privileges" in the Sub-Licence. Individually and separately these may not have been prima facie assignable. Collectively and as part of the chose in action constituted by the assignee's rights and powers under the contract, they were. However, this does no more than reflect that, as property, a bundle of contractual rights constituting a chose in action may be capable of fragmentation but only in ways that are consistent with the nature and structure of the contract itself: cf Gray and Gray, Elements of Land Law, 2.18 (4th ed, 2005). 41 Thirdly, the discriminating characteristic used by the primary judge and relied upon by Underworks to differentiate the prima facie assignable from the unassignable - the concept of "property" - is, in our view, less than helpful in this setting, the moreso because it is being invoked to differentiate what are parts of a whole. The limits to the use of "property" as an analytical tool have been well recognised in decisions of the High Court: see Yanner v Eaton (1999) 201 CLR 351 at 366 ("Yanner v Eaton"). Those limits are exaggerated by the word "property" itself. Professor Gray has rightly observed of the word "property" that is in large part "a category of illusory reference": Gray, "Property in Thin Air" [1991] Camb LJ 252 at 305; "a conceptual mirage": Gray and Gray, above, at 2.1. 42 In the context of contractual rights, the term "property" does not refer to a thing. It refers to a legal relationship with a valued resource, i.e. the benefit of a contract: cf Yanner v Eaton, at 355-356; and to a legally endorsed concentration of power over that resource: ibid, citing Gray and Gray. For our own part, given that the one party's benefit of the contract is made up of that party's bundle of rights under that contract (which in turn make up that party's legally endorsed power in relation to the subject matter of the contract), we do not see any proper basis for differentiating between the various rights and powers of a party, ascribing to some the character of property while denying that character to others. The correct approach we consider to be to abjure such attempts at differentiation and to regard, as a rule, all such rights and powers as possessing and reflecting the character of the chose in action of which they are part and which is the composite of a party's rights and powers created under the contract. This is not to say that all such rights and powers are separately, as distinct from collectively, assignable as we have earlier indicated. Nor that some or all of them may not be rendered unassignable for other reasons, for example, because of an express contractual prohibition or because for some purposes the identity of the obligee is material to the contractual relationship or to its performance by the obligee. 43 In consequence we consider that the proper approach to be taken is that (i) all of a party's contractual rights, being parts of a chose in action, have a proprietary character for assignment purposes and are prima facie assignable but (ii) whether in a given case they or some of them are unassignable will depend upon whether there is a reason which nonetheless precludes assignment. Apart from prohibitions created by statute or public policy, the most common such reasons will be a contractual prohibition on assignment, the materiality of the identity of the obligee to the contractual relationship or to the obligor's performance, or, less commonly, in the case of an assignment of a part of a composite chose, the various rights are not separable in the manner attempted. We would add that we consider that this approach not only is more likely to engender greater certainty in routine commercial dealings where assignments are the common place than that adopted by the primary judge, but also it avoids what we consider to be a process of characterisation fraught with uncertainty. 44 Accordingly, and putting to one side the cl 18.2 power to terminate, we consider his Honour erred insofar as he concluded that various rights and powers under this contract were not assignable because they were not proprietary in character.

[17]

(ii) Was the cl 18.2 power to terminate prime facie assignable? Was the common law power to rescind available to the appellants? 45 It is appropriate to deal with these particular matters separately notwithstanding that our conclusion is encompassed in what we have said above. 46 The primary judge, as already noted, concluded that a right to rescind or terminate a contract whether for breach or otherwise was a personal right or privilege of the person in whom it was vested; they were not species of property which, if interfered with, could be recovered by action; and they needed no curial intervention to make their exercise good or effective. His Honour analogised such rights to a landlord's right of entry which the Supreme Court of the United States held in Inglis v The Trustees of The Sailors' Snug Harbour in the City of New York 28 US 99 at 180 (1830) ("Inglis") not to be a thing in action for it did not depend upon any right to sue, but could be enforced by a mere entry. 47 The appellants' case proceeds in two parts. The first relates to the cl 18.2 power. What is said in relation to this is that, irrespective of whether cl 18.2 could be assigned separately, where what was intended to be assigned was the totality or "aggregate" of Sara Lee's rights and powers (i.e. its "interest" in the Sub-Licence), the cl 18.2 power was assigned with them. Additionally, it is said, that power was not a mere "personal right or privilege". It was an integral part of the bargain affecting the character and extent of the rights and obligations of the promisor and the promisee. 48 Underworks' submissions in contrast reflect the primary judge's holding. 49 We are satisfied that the cl 18.2 power was not severable or separable from the totality of Sara Lee's rights. It applied to a breach of "any term and condition". With Sara Lee's assignment of those terms and conditions, the cl 18.2 power went with them to Pacific Dunlop. Whether or not the power can properly be characterised independently as a chose in action - and the decision of the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 ("Investors Compensation Scheme") might be taken as suggesting it could not - it was, in our respectful view, an inseparable part of Sara Lee's interest in the Sub-Licence and to that extent it was part of the chose in action made up of the composite of rights and powers Sara Lee enjoyed. 50 We reserve our view on whether such a power could be said to accompany only a partial assignment of contractual rights. That issue is not live in this appeal. 51 We would add that we do not consider that what we have said is inconsistent with the substance of what Lord Hoffman said in the Investors Compensation Scheme case. His Lordship there held that a right to rescind a mortgage cannot be assigned separately from the mortgaged property and is a claim that can only be made by the owner: see also Re Davies & Co; Exp Rawlings (1888) 22 QBD 193. In the present matter the cl 18.2 power was one in respect of the totality of Sara Lee's rights and when Sara Lee assigned those rights, it in effect put the assignee in its shoes in relation to those rights and the power it had in relation to them. 52 The cl 18.2 power cannot properly be said not to be part of a chose in action for the reason that it is not itself a power which can only be enforced by action. While the giving of a valid written notice to terminate under the agreement may of itself carry legal consequences, and in that sense the sub-clause does not require a remedy for its enjoyment, the enjoyment of the benefit of the power commonly requires the award of curial relief precisely because one is dealing with incorporeal property. For this reason such a power is best characterised as a self-help remedy about which the law permits the parties to bargain: Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 848-849; but which, if necessary, will be re-enforced by appropriate curial relief. We should add we do not consider that the Inglis case relating to the landlord and tenant relation to be of assistance in this matter. The cases on re-entry and the taking of physical possession of property belong to a different field of discourse. 53 We are in consequence satisfied that the primary judge erred in the view he took of the prima facie assignability of the cl 18.2 power. 54 Secondly, the right to terminate at common law. In their amended statement claim, the appellants relied not only on termination under cl 18.2 but also on termination at law consequent upon acceptance of Underworks' repudiation of the Sub-Licence. It, apparently, has not been contended by Underworks that the cl 18.2 remedy was the exhaustive or exclusive remedy available to the appellants. 55 If it were the case that all of Sara Lee's substantive rights were assigned - i.e. the entire chose was assigned - the consequence of that would be that not only did the assignee acquire the legal right to the chose but also "all legal and other remedies for the same": Conveyancing Act 1919 (NSW) s 12. The effect of the assignment would have been to put the assignees in the same position in relation to repudiatory conduct as Sara Lee would have been had it retained the chose. Accordingly, we consider the assignees would have had available to them by way of remedy (inter alia) the right to claim damages for non-performance of Underworks' primary obligation and the power to elect to put an end to all primary obligations of both parties that remained unperformed. It would be anomalous to insist that, while Sara Lee had disposed of its interest in the contract, it nonetheless was the only party entitled to accept a repudiation. We can see no reason for being driven to such a conclusion. 56 We again consider his Honour to have been incorrect in the view he took of the power to terminate at common law. We should again add, though, that we reserve our view as to whether this power would be available to an assignee in the case of a partial assignment of rights.

[18]

(iii) Was Sara Lee's identity material to the contract or its performance? 57 This is the pivotal issue in this appeal. Having held for the reasons we have so far discussed that the "powers and privileges" conferred by cll 8.1, 8.6, 8.7, 10, 12 and 13 were not assignable - and breach of these founded Pacific Brands Sports' claim to terminate - his Honour in [19] of reasons gave an alternate reason for his conclusion: "Even if I were wrong and the powers or privileges which I have identified, including the right of rescission, were capable in law of assignment, I would hold, on the authority of cases such as Tolhurst v The Associated Portland Cement Manufacturers (1900), Limited [1903] AC 414, 424 and Bruce v Tyley (1916) 21 CLR 277, 289, that, in this case, each power has an element of personal confidence about it (the exercise of the power is one which the parties assumed would be exercised personally by Sara Lee) so that, in the absence of Underworks' consent, the ability to exercise that right or power could not be assigned to anyone else. Not only do the covenants that I have identified (including the right of termination) involve personal confidence, if assigned to a third party such as Pacific Dunlop or Pacific Brands their exercise could prejudice Underworks in the sense that the rights or powers might be exercised differently than would be the case if they had remained with Sara Lee, which is another reason for ruling against an assignment: Restatement, Second, Contracts s 317 Corbin on Contracts (Interim Edition) s868; Farnsworth on Contracts s11.4 (3rd ed, 2004). The reason the rights or powers may be exercised differently is obvious. An assignee, especially an assignee that is a competitor, may hold different views than Sara Lee about the essentially discretionary matters that would be taken into account in deciding both when and how the rights or powers ought be exercised." 58 The appellants' case challenges these conclusions as a matter of construction and characterisation of the Sub-Licence in its setting. And they assert there is an absence of contextual material to support the conclusions. The respondent contends to the contrary. It is contended that in view of the nature of the Sub-Licence and its terms, the identity of the sub-licensor and sub-licensee was, objectively, important to both Sara Lee and Underworks. Sara Lee, which was not exploiting the marks except in relation to one type of King Gee sock, contracted with Underworks whose principals had significant experience in the relevant product market. Significantly, it is said, Sara Lee and Underworks were not competitors. It was one thing to provide details of production facilities and other business information to Sara Lee; it was quite another thing to have to deal with a competitor like Pacific Brands in that regard. Further, under the terms of the Sub-Licence, it is said a significant measure of cooperation between the Sub-Licensor and Sub-Licensee was required, especially in relation to the giving of approvals for new products, packaging and manufacturing facilities and the remedying of any alleged breach etc, in order that the parties, in particular the Sub-Licensee, could properly benefit from the Sub-Licence and would continue to do so for the duration of the specified term. A competitor would approach such matters differently to a non-competitor. An assignment of the Sub-Licence to a competitor such as Pacific Brands would therefore have the effect of altering Underworks' right and prejudicing it, affecting its ability to make the contract pay. 59 It characteristically is said that it is a question of construction whether a contract itself or particular rights or obligations, involve personal considerations such as to render the contract or those rights unassignable, or the obligations not delegable: see e.g. Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 at 416-417; National Carbonising Co Ltd v British Coal Distillation Ltd (1936) 54 RPC 41 at 54; Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 at 118-120; see also Furmston (ed), above, 6.299, 6.301-6.324; Chitty on Contracts, above, par 19-053; cf Cheshire & Fifoot's Law of Contract, above, [8.6]. However, given the particular purpose for which the contract and its terms are being construed, implicit in the question of construction are, ordinarily, issues of characterisation and of inference in which the significance to be attributed, variously, to identity, to the qualities or attributes one or both parties are expected to exhibit and to the character of the parties' relationship, can loom large. 60 It is fair to say at the outset that the drafting of the Sub-Licence betrays oversight, a lack of prescience and mistakes in the identification of the proper party in particular clauses (as to the last see cl 3.1, 8.5). 61 The Sub-Licence imposed no express prohibition on assignment of rights by Sara Lee. This contrasts with the cl 14.1 prohibition binding Underworks. But neither did the Sub-Licence define Sara Lee for the purposes of the contract as "Sara Lee and its assigns". Save in exceptional circumstances, such a definition would signify a contractual intent that Sara Lee's benefit of the contract would be assignable: Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576; Devefi v Mateffy, above, at 235, 238-239. Clause 1.2 of the Sub-Licence merely stated in general terms that a reference to a party to the Sub-Licence or to "any other agreement or document includes the party's successors and permitted substitutes or assigns". As we will indicate in the next part of these reasons, that clause in the context of this Sub-Licence did not reveal an intent that Sara Lee could assign its rights without Underworks' consent. 62 One, in consequence, is left to discern whether and to what extent Sara Lee's rights were assignable from what the Sub-Licence objectively construed conveyed to a reasonable person. This exercise "requires consideration not only of the text of the [Sub-Licence], but also the surrounding circumstances known to [the parties], and the purpose and object of the transaction": Pacific Carrier's Ltd v BNP Paribas (2004) 218 CLR 451 at [22]. 63 It is not unimportant to notice that the Sub-Licence related to the use of a trademark. Some number of its provisions, and particularly those relating to Sara Lee's powers to control the use of the marks and to maintain its own reputation in its products and brands, reflected what was reasonably predictable given the "control" requirements of s 8 of the Trade Marks Act 1995 (Cth) defining an "authorised user" of a mark: see generally Davison, Johnston and Kennedy, Shanahan's Australian Law of Trade Marks and Passing Off,[17.25] ff (3rd ed, 2003). While Sara Lee's licence with Saramar is not in evidence, it is probable that some of the provisions of the Sub-Licence have their provenance, if not necessarily their language, in the requirements of that licence. Be that as it may, it is fair to say in general terms that some number of the terms and conditions of the Sub-Licence have characters one would reasonably expect of a Sub-Licence for a trade mark. 64 What is important for present purposes, though, is the manner in which these provisions appeared to tie Sara Lee to Underworks. Clause 4.3 required the Sub-Licensee "to exploit the Products … to the best advantage of the parties". Clause 6.1 required the Sub-Licensor to furnish to the Sub-Licensee such assistance and advice as the Sub-Licensor deemed helpful in the Sub-Licensee's promotion and sale of the products. If both of these provisions reveal some level of reciprocal responsibility of one party for the other, standing alone they do not suggest that what was intended was some form of cooperative endeavour or "quasi-partnership": cf National Carbonising Co Ltd v British Coal Distillation Ltd, above; in which Sara Lee as such had tutelary responsibilities: (cl 6). 65 There are, though, significant indications in some number of the provisions of the Sub-Licence which suggest that the Sara Lee/Underworks relationship was contemplated to be a personal and an enduring one for the life of the Sub-Licence. Some number of sub-clauses impose obligations or create rights, which are related specifically and expressly to Sara Lee or to the Sara Lee Corporation. We refer, for example, to cl 8.7 (authorising Underworks to indicate its corporate name as manufacturer on products etc with the notation that it does so under Sub-Licence from Sara Lee); to cll 11 and 12 (in relation to Sara Lee Corporation's Guidelines and the part they are to play in the Sub-Licence). Unless and until these provisions were varied as part of a novation, both Sara Lee and Underworks were bound by them. When these provisions are considered in the context of some other of the clauses giving the "Sub-Licensor" judgmental power over the "Sub-Licensee", they in turn suggest an intent that that power so given was personal to Sara Lee. In other words, the standards to be adhered to, and the judgments to be made about protecting the mark through quality control (cl 8.5) and mark use (cll 8.4 and 8.1 to 8.3) and in approving manufacturing facilities (cl 10), were to be set, or made, by Sara Lee. 66 When one turns to the context of the Sub-Licence, the evidence is particularly sparse. It was the case that, at the time of its execution, Sara Lee was not using the Stubbies mark to produce socks and underwear nor was it so using the King Gee mark (save for work socks). Though the Sub-Licence did not prohibit Sara Lee from competing with Underworks on socks and underwear, and it could do so under other brands, the licence itself was an exclusive licence though within customer and geographic limits. While the Sub-Licence permitted Sara Lee to use the marks outside those limits, it envisaged the possibility of its obtaining product from Underworks. Beyond this and what we have already said about the significance of the subject matter of the Sub-Licence (i.e. it related to trade marks), there is little else that throws light on the construction issue although we would also note that the agreement not only imposed a general confidentiality obligation on the parties (cl 9), it also positively protected the more sensitive parts of the Sub-Licensee's business information from disclosure to the Sub-Licensor notwithstanding the independent audit requirement imposed in association with verifying royalties payable (cl 5.5). The reasons for both such obligations are understandable. The former reflected a predictable appreciation that some level of personal trust and confidence necessarily underlay the business relations of the contracting parties. The latter, while respecting that confidence, nonetheless imposed an accountability requirement through the independent audit requirement. 67 Considered in its totality, we are satisfied that the Sub-Licence in its setting, while not of a type that was necessarily inherently personal in character: cf Furmston (ed), above, 6.308-6.309; was nonetheless intended to create an enduring relationship in which the identity of Sara Lee as the Sub-Licensor was material and was made so by Sara Lee in particular. While acknowledging the legitimate interest the Sub-Licensor had in exercising control over the use of the mark and hence having contractual powers to that end, we consider that there are sufficient indications in the text of the Sub-Licence itself that the particular will to which the Sub-Licensee was asked to subject itself was Sara Lee's, and that that was a state of affairs that Underworks agreed to (especially having regard to the terms in which certain control and veto powers were cast, e.g. cll 8.4, 10 and 12) because it could not be changed without its consent: cf L/M International Construction Inc v The Circle Ltd Partnership (1995) 49 Con LR 12 at 25. As indicated above, those clauses in the agreement which referred specifically and expressly to Sara Lee or to the Sara Lee Corporation are of particular significance in this. 68 Accordingly we agree with his Honour's conclusion in this particular matter.

[22]

"I should say that even if I were to ignore the negotiations and rely solely on the conduct upon which the applicants rely to establish the existence of a novation, that evidence would not suffice, in my opinion. If the conduct in question is consistent with an intention not to contract, for example, if the conduct is referable to some other obligation, a contract by conduct will not arise: Horrocks v Forray [1976] 1 WLR 230, 238-239; The Aramis [1989] 1 Lloyd's Reps 213, 224. In this case, when viewed objectively by a person in Pacific Brands' position (as to the importance of this approach for the creation of a contract see Smith v Hughes (1871) 6 QB 597, 607), Underworks' conduct may be explained as referable at least in part to an assignment of some of the rights under the sub-licence (for example the payment of royalties to Pacific Brands) and a belief (as asserted by Pacific Brands itself) that thereafter as a practical matter Underworks was required to deal with Pacific Brands rather than Sara Lee. All in all, I think the applicants' claim for novation is hopeless." 75 The respondent's contention, shortly, is that if acquiescence was to serve any role in this matter, it had to be acquiescence in the transmission of the rights and obligations from Sara Lee to Pacific Dunlop and this was not the case. It is contended as well that his Honour's comments on Underworks' conduct and the alleged novation apply equally to the alleged acquiescence. 76 The appellants' case is an untenable one. We agree that the primary judge's characterisation of Underworks' conduct vis-ŕ-vis Pacific Brands for the purposes of the novation claim apply, equally, to the consent claim. It would, in our view, be quite incongruous in this setting to find that Underworks consented to Pacific Brands acquiring some of the very rights which it (Underworks) strenuously objected to its acquiring under the proposed deed of novation. The parties' conduct must be evaluated under the shadow of the novation negotiations and, importantly, in light of the fact that Underworks was conducting a going concern at the time. So considered, we consider its dealings with Pacific Brands did not constitute a consent to the assignment, but rather was in the nature of a holding measure at a time at which it was in a position of unexpected vulnerability to a competitor, pending a satisfactory resolution of the matter.

[31]

(i) Cl 4.3 and exploitation of the products 80 Clause 4.3 obliges the Sub-Licensee to exploit "the Products" within Australia and New Zealand to the best advantage of the parties. The "Products" are defined in cl 1.1 to mean in relation to the King Gee and Stubbies marks "men's socks and underwear" and "children's socks and underwear" respectively and "such other products" as shall be agreed by the parties in writing. 81 It was common ground at trial that Underworks did not sell socks or underwear bearing the Stubbies mark, although the primary judge found that it made reasonable but unsuccessful efforts so to do. His Honour went on to find that the subclause did not impose an obligation on Underworks to effect sales of products bearing the Stubbies marks. While the word "exploit" could convey the notion of the successful exploitation of the products bearing the mark "that is turning their use (by sale) to profit", that was not the meaning he gave the word for the following three reasons: "First, the original parties to the sub-licence were no doubt aware of the risk that the products might not find a market. The risk is not confined to socks and underwear. Second, the contractual obligation is to exploit the products 'to the best advantage of the parties'. The parties (or at least one of them) might not be advantaged by exploitation (sales) which result in a loss. Third, cl 5.7 permits the sub-licensor to terminate the sub-licence if sales above a certain level (that is sales which would not produce the minimum royalty) are not achieved. This suggests that if there were no sales or no minimum sales the parties contemplated that the sub-licence could be brought to an end, but not as a result of breach": [53]. 82 The appellants challenge each of these reasons: the first, because the assumed awareness of the parties provides no foundation for any inference that they were unwilling to take that risk; the second, because his Honour failed to take account of the fact that failure to exploit may have made the mark vulnerable to removal from the register for non-use of the mark under s 92(4)(b) of the Trade Marks Act 1995 (Cth) (non-use of mark for 3 years preceding the removal application), and the third, because cl 5.7 is irrelevant to the proper construction of cl 4.3. 83 The respondent in its submissions notes that the cl 18.2 notice of termination relied upon in the Amended Statement of Claim was that of 15 August 2003 and contends that the purported termination was ineffective as the notice did not satisfy the requirements of cl 18.2. As to the alleged breach itself, it contends that, as the uncontested evidence showed it made considerable and reasonable efforts to find a market for the Stubbies products but was unsuccessful in doing so. Given the cl 4.3 obligation was not an absolute one to exploit the products, but only was one to do so to the best advantage of the parties, this did not require it to sell the products irrespective of whether there was an available market for the products or a profit to be made. The alleged risk of removal from the register under s 92 of the Act, it is said, was not a real concern as Sara Lee and Pacific Brands had the option under cl 7.2 of the Sub-Licence to cause use of the mark by obtaining Stubbies products from Underworks for cl 7.1 purposes. 84 On the issue of breach, we agree with the above submissions. The absolute character that the appellants' submission requires cl 4.3 to be given is untenable given the qualified language of the sub-clause. That provision does not wholly subordinate the Sub-Licensee's interests to those of the Sub-Licensor. We should add that we do not consider that the fact that the Sub-Licence is for the use of a trademark affects this conclusion. The parties have not agreed to "use" of the mark at all costs. 85 It is unnecessary to consider whether the notice of termination was defective in relation to this alleged breach.

[32]

(ii) Subclauses 8.1 and 8.2 and marketing plans 86 Subclauses 8.1 and 8.2 required Underworks to submit an initial marketing plan containing specified information and thereafter a similarly formatted plan annually by a specified date. 87 His Honour dealt with this matter shortly, noting that the 15 August 2003 notice of breach alleged mistakenly that the marketing plan had not been submitted by the specified date in 2003 for the year 2004. While there was a good deal of evidence concerning the fact that the plan did not contain the required information (which his Honour noted "may be true"), that was not the breach referred to in the notice. 88 The breach complained of was the non-receipt of the marketing plan by the prescribed date. It went on to note that the plan "must include all of the detailed information set out in clause 8.1". Given the premise of the notice (i.e. non-receipt), this cannot be construed as alleging an existing breach of clause 8's requirements as to the content of that plan. 89 We agree with the primary judge's conclusion as it relates to termination under cl 18.2. We would simply add that the notice did not retrospectively change its character because subsequent communication between the parties indicated that the plan received did not meet the requirements of cll 8.1 and 8.2. The notice relied upon in the pleading for the purposes of cl 18.2 was that of 15 August 2003 alone. 90 The alternate claim of repudiation advanced by Pacific Brands is not so easily dealt with. At trial it would seem that Pacific Brands relied upon Underworks not providing adequate plans as one aspect of its case that Underworks had repudiated the Sub-Licence. The primary judge made no findings on the repudiation claim. Complaint is made of this in ground 13(b) and (c) of the notice of appeal. However, the difficulty with this ground of appeal is that the only submissions made on the appeal in relation to repudiation as such relate to the inadequacy of the marketing plans provided by Underworks and, in particular, of the plan for 2004. For the reasons we have already given, or will later give, the alleged breaches of cl 4.3 and cl 12 cannot be rolled into the repudiation case. 91 The evidence of repudiation in relation to the plan for 2004 is sparse. Though allegedly non-compliant plans had been forwarded by Underworks in previous years, no complaint had been made of this and, after the assignment to Pacific Brands, no complaint was made explicitly until after the notice of breach. In September 2002, while information was sought from Mr Todaro of Underworks relating to details that in fact fell within the cl 8 requirements, no complaint was made of the inadequacy of the plan for 2003, nor was any such issue raised with Mr Todaro at a meeting with Pacific Brands on 19 September 2002. 92 When the plan for 2004 was received by Ms Shwabsky of Pacific Brands around mid August 2003 an email was sent to Mr Todaro on 21 August 2003 which indicated that the plan was "very brief and does not meet the guidelines set out in the licence agreement". It requested additional material as specified in cll 8.1 and 8.2. The sender, Ms Shwabsky, was a former Sara Lee employee and then an employee of first Pacific Dunlop and then Pacific Brands. She was responsible for the King Gee brand. In cross-examination she acknowledged that this was the first time she had sought information in this way about a marketing plan. 93 Mr Todaro responded on 25 August 2003 indicating: "No problem will address the relevant details. Can you send me your marketing plan so we can tie in with your programme". On the same day Ms Shwabsky replied enclosing some papers from Pacific Brands' plan which she said in cross-examination were relevant to Underworks' plan. Packaging plans were apparently of immediate concern and this was highlighted in the Shwabsky response. Todaro gave a response to the delay in providing packaging details noting that "I received an email from you saying that until the contract [i.e. the Deed of Novation] was finalised nothing would be approved. I presumed this included the packaging". He then indicated that the person who was to do the artwork for the packaging - it was to be done by an unrelated company - was on leave until 8 September 2003. 94 We should interpolate that this correspondence occurred not only under the shadow of the 15 August breach, but in a context in which Pacific Brands had indicated it would not provide a number of particular approvals to Underworks until it signed the Deed. 95 On 27 August 2003 Ms Shwabsky contested Mr Todaro's understanding and indicated that his attention to the new packaging "would be much appreciated". 96 On 28 August 2003 Mr Todaro by email sent "further details as requested". 97 Ms Shwabsky said in cross-examination that by 2 September 2003, her view was that she had hoped they could bring the Sub-Licence to an end "so we could move forward". In an internal email of the same date she said: "Underworks have certainly increased their communication. Just hope they can't get everything up and running". 98 The notice of 22 September 2003 purporting to terminate the Sub-Licence under cl 18.2 stated (inter alia): "I am instructed that your company has not addressed, or has not adequately addressed, any of the defaults listed in the Letter. Although a marketing plan was received from your company by email on 18 August 2003, as advised to you by email by Sonia Young on 21 August 2003, the marketing plan did not comply with the particular requirements of clauses 8.1 and 8.2 of the Agreement. Your company has made no approach to address the numerous other breaches of the Agreement as clearly set out in the Letter." 99 Mr Todaro's affidavit reveals reasonably regular communication (primarily by letter or email) between himself and Sara Lee and Pacific Brands prior to the termination of the Sub-Licence concerning marketing plans, samples and packaging. He indicated in cross-examination in relation to the marketing plans he sent Sara Lee and Pacific Brands that he "put in everything that was relevant to what we were selling and what I could put in there". It was everything he thought ought to be in the plan under the Sub-Licence. 100 The appellants' case is that Underworks' breach of cll 8.1 and 8.2 and its failure to remedy the breach after the receipt of notice of breach demonstrated that Underworks was unwilling to perform its past or future contractual obligations and/or intended no longer to be bound by the Sub-Licence or to fulfil its obligations under it only in a manner substantially inconsistent with its obligations. Its breaches thus amounted to repudiation which Pacific Brands accepted by the termination notice. 101 Underworks, for its part, has contended that its marketing plans were all in similar form and no complaint had been made about them. If there was an inadequacy a reasonable person in business would have expected complaint. It was contended as well that the plans given were, to a business person, adequate in the circumstances given that the Sub-Licence was one between businesses dealing with goods to be sold through standard identified channels with quite limited opportunity for promotional opportunity and the parties understood this. In any event, it is said Underworks remedied the breach by subsequently liaising with Pacific Brands. 102 The principles governing repudiation of a contract are, as we understand it, not in issue and for present purposes can be stated shortly. (i) A party will have repudiated a contract if, by words or conduct, it evinces an intention no longer to be bound by it or if that party shows it intends to fulfil the contract only in a manner substantially inconsistent with its obligations and not in any other way: Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625-626; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623.

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(iii) A party that acts on a genuine but erroneous view of its obligations under the contract will not for that reason alone have repudiated it. That party may still be willing to perform the contract according to its tenor: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 431-432; Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277. But persistence in an untenable construction will ordinarily be regarded as repudiatory: Summers v Commonwealth (1918) 25 CLR 144 at 152; and see Chitty on Contracts, above, par 25-018. 103 We would note, additionally, that in the case of contracts of significant duration in which interaction and some level of cooperation is required, it is common for parties without formally varying their contract to conduct their dealings inter se in ways that they find acceptable and convenient, fair and reasonable, or commercially necessary "rather than by reference to a priori rights and duties": cf Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11, 110 at 11,117. 104 Underworks has not formally complied with the content requirements of its marketing plans apparently since their inception. Up until the plan for 2004, the parties have nonetheless been prepared to order their affairs on the basis of what has been provided, albeit, this was not strictly in accordance with their respective rights and obligations. It probably was the case that the combination of the plans given and of the process of communication otherwise engaged in sufficed for the needs of both parties and was acceptable and convenient to them. Up until the matter became an expressed issue in August 2005, we are satisfied that Underworks' conduct in this respect could not in any sense be characterised as repudiatory, its breaches notwithstanding. Its conduct may have departed from what the Sub-Licence formally required of it but it did not in the circumstances demonstrate an intent not to be bound by the Sub-Licence. Nor did it indicate that Underworks intended to fulfil the contract only in a manner inconsistent with its obligations and not in any other way. It did what it had done over several years without demur. 105 Do the events of August and early September 2003 require a different characterisation? In our view they do not. Bearing in mind the context in which Underworks found itself, i.e. the notice of breach had been served and it had not signed the deed of novation, we are satisfied that it sought to respond appropriately to Pacific Brands' specific requests for information although it did not respond directly or in terms to the omnibus request for all of the cl 8.1 and 8.2 information. We do not consider Underworks was evasive or deliberately uncooperative in the steps it took at that time. Equally we accept that its omission in relation to packaging plans was based on an assumption which, in the circumstances, it could honestly and reasonably have entertained, whether or not that assumption was correct. We also do not accept Pacific Brands' characterisation of Mr Todaro's conduct in this matter as "evasive". We consider Mr Todaro was acting in good faith, somewhat misguidedly, but not intransigently. He acted as he had done previously. More in the circumstances was needed by way of warning from Pacific Brands to alert Underworks that what was being done not only was unacceptable but, also, if persisted in, would be regarded as repudiatory. 106 A case for repudiation based solely on the breach of the content requirement of cll 8.1 and 8.2 is not sustainable. Pacific Brands saw Underworks conduct, including in relation to marketing plans, in a particular light. Having served its notice of breach, it already had an eye to the future, being one without Underworks and it acted accordingly. But in the context of the parties' relationship over time, Underworks conduct in relation to the content of its marketing plans would not convey to a reasonable person judging the matter objectively that it had repudiated its obligations in relation to plan content.

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(iii) Clause 12 audits 107 The cl 12 obligation was for the Sub-Licensor to have an independent audit conducted of each manufacturing facility both on entry into the contract and at least annually thereafter, the audits being for compliance with the Sara Lee Corporation Guidelines. 108 The primary judge considered that it was common ground that no audit was carried out on any facility where Underworks products were manufactured in the year ended 2002 (assumed to be the year in respect of which the breach was alleged), nor in any earlier year of the Sub-Licence. However, his Honour reasoned (at [58]): "Strictly speaking, therefore, Underworks is in breach of cl 12. I believe, however, that the breach has been waived. Neither Sara Lee nor Pacific Dunlop required the audit to be conducted in earlier years and made no complaint when none was undertaken. In the circumstances Sara Lee would be estopped from relying on a breach of the clause and that estoppel would also bind Pacific Brands. Moreover, Pacific Brands in its own right would also be estopped from relying upon the breach. It is simply not possible to sit back for one or more years after the audit should have been performed and then complain about Underwork's failure to arrange for the audits to be conducted and thereafter submit the reports." 109 We would note that in its defence to the relevant clause in the appellants' Amended Statement of Claim, Underworks pleaded that at all material times after 15 November 2000 Sara Lee represented to Underworks that it did not require an audit of the manufacturing facilities. The alleged representation inhered in the absence of complaint about Underworks not having conducted audits. It was said to be further constituted by a representation made by a King Gee manager concerning his audit of several facilities in China. This later representation is, in our view, wholly irrelevant to the cl 12 estoppel claim, as the audit in question related to the Sub-Licensor's own right to conduct an audit under cl 13 and any representations made related to an audit of that type. 110 The appellants' case on this appeal is that the respondent could not rely upon any estoppel or waiver by Pacific Brands of cl 18.2 in respect of a cl 12 breach because of the no waiver provisions of cl 22 of the Sub-Licence. Clause 22 provided: "NO WAIVER Neither failure to exercise nor any delay in exercising any right, power or remedy by a party operates as a waiver. A single or partial exercise of any right, power or remedy does not preclude any other or further exercise of that or any other right, power or remedy. A waiver is not valid or binding on the party granting that waiver unless made in writing." We would emphasise in this that the focus of the clause is on the conduct of the party having the right, power or remedy in question. 111 As cl 12 audits were required annually, it is said a new audit obligation arose each year which would not be waived by the waiver of a prior year's obligation. Further, it is said his Honour erred to the extent that his reasoning suggested that Pacific Brands could somehow be bound or estopped by any supposed "waiver" of cl 12 by Sara Lee or Pacific Dunlop before the assignment to Pacific Brands. 112 What is to be noted about this case is that the primary judge's conclusion was that Pacific Brands was estopped from relying upon the breach. While he had earlier used the term "waived" - a term used inconsistently and of notoriously uncertain meaning: see generally Wilken and Villiers, The Law of Waiver, Variation and Estoppel, Chs 3 and 4 (2nd ed, 2002); Meagher, Gummow and Lehane's Equity: Doctrines & Remedies, 17-140 (4th ed, 2002); Furmston (ed), above, 2.99 ff; of which his Honour was doubtless aware - his finding was expressed in the language of "estoppel". This, in our respectful view, was deliberate and designedly specific. 113 The term "waiver" is commonly used loosely to encompass doctrines as diverse as election, estoppel and contract variation: cf Beatty v Guggenheim Exploration Co 122 NE 378 (1919) at 381; Kammins Ballroom Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 at 882-883; for the differences between the above doctrines and waiver see GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 at [224] ff, (variation), [356]-[364] (election), [424] ff (estoppel) and cf [467] (waiver). To the extent that waiver has an independent province - and this is a matter of some contest in Australian law: see the varying views expressed in Commonwealth v Verwayen (1990) 170 CLR 394 at 406-407, 424-428, 451, 471-472, 491 ff - the best that probably can be said is that it applies to those circumstances in which the law recognises a voluntary or intentional relinquishment or renunciation of a known right, claim or privilege: Northwestern Fire & Marine Insurance Co v Pollard 238 P 594 (1925) at 596; Commonwealth v Verwayen, above, at 424-428; see also H K Lücke, "Non Contractual Arrangements for the Modification of Performance: Forebearance, Waiver and Equitable Estoppel" (1991) 21 WALR 149; see also Farnsworth, Changing Your Mind: The Law of Regretted Decisions, Ch 16 (1998). Wilken and Villiers, above, at 3.15, have suggested helpfully that there are four distinct types of "waiver", or relinquishment, of a right, etc: "The first and main type is waiver by election. There are three additional types of waiver which can be best described by the situations in which the Courts have found that there has been a waiver: where X has not been put to its election but nevertheless decides to accept different future performance by Y under the contract ('pure waiver'), where Y has failed to perform its obligations under the contract and X accepts that non-performance as proper performance under the contract forgoing X's right to repudiate and to sue for damages ('total waiver'), and X's forgoing of a right under the contract which inured solely for X's benefit ('unilateral waiver')." 114 Unlike with estoppel, none of these instances turn upon detrimental reliance by the non-waiving party upon what has been represented to it. Rather the focus, like in cl 22 of the Sub-Licence, is on the conduct of the party alleged to have waived its right: for the differences more generally between waiver and estoppel, see Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 at 327-328; Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India [1990] 1 Lloyd's LR 391 at 399. Where the distinction between "pure waiver" and estoppel (particularly equitable estoppel) can become blurred is where a person, having legal rights against another, represents to that other that he or she does not intend to enforce those rights. Such conduct may in given circumstances give rise to a waiver. However, if the representee acts, or ceases to act, in reliance upon the representation with the effect that it would be inequitable or unconscionable thereafter to enforce his or her rights inconsistently with the representation, that party will be estopped from so doing. 115 Turning to cl 22, it both uses the language of, and the concepts of, waiver in what we would describe as the narrow sense of that term that does not encompass estoppel: cf Craine v Colonial Mutual Fire Insurance Co, above, at 328; Bay of Plenty Electricity Ltd v Natural Gas Co Energy Ltd [2002] 1 NZLR 173 at [49]. Its exclusive focus is on the party whose conduct but for cl 22 might give rise to a waiver. Accordingly, that clause provides no basis for impugning the primary judge's estoppel decision. 116 Underworks' defence pleads a representation by conduct; it is common ground that no audit reports were provided; and it is implicit in the defence that Underworks relied upon the representation alleged. In other words the ingredients of an equitable estoppel were there. They have not been put in issue in this appeal. 117 We would add the following for the sake of completeness: (i) equitable estoppel can apply to representations or promises as to future conduct: see generally Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; (ii) in the case of an assignment of contractual rights, there is authority for the view that if an estoppel arises against the assignor in relation to its rights prior to the assignment, the assignee takes subject to the equities (hence to the estoppel) which the obligor had against the assignee: Bay of Plenty Electricity Ltd v Natural Gas Corporation Energy Ltd, above, esp at [45]-[49]; and see Wilkens and Villiers, above, 5.14-5.20 in relation to waiver and third parties; and (iii) it has not been in issue in this proceeding whether, notwithstanding that an estoppel may have arisen against Sara Lee and then Pacific Dunlop and Pacific Brands, Pacific Brands could nonetheless by the giving of reasonable notice have reinstated its cl 12 audit right: cf Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 at 750. 118 The appellants' appeal on cl 12 must be rejected.

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THE SUB-LICENCE AND ITS ASSIGNMENT 122 As at 15 November 2000, Saramar LLC, a limited liability company formed under the laws of the State of Delaware, USA ('Saramar'), was the registered owner under the Trade Marks Act 1995 (Cth) ('the Trade Marks Act') of a number of trade marks relating to clothing. Some of the trade marks incorporated the name 'King Gee' ('the King Gee trademark'). Others incorporated the word 'Stubbies' ('the Stubbies trademark'). 123 Prior to 15 November 2000, Saramar granted to the third appellant, Sara Lee Apparel (Australasia) Pty Ltd ('Sara Lee'), an exclusive licence ('the Head Licence') to use the King Gee trademark and the Stubbies trademark (together 'the Trade Marks'). The licence was apparently limited to Australia. The instrument granting the licence was not in evidence. 124 On 15 November 2000, Sara Lee and the respondent, Underworks Pty Ltd ('Underworks'), entered into an instrument entitled 'Sub-licence Agreement' ('the Sub-Licence'). By the Sub-Licence, after reciting that Sara Lee was the exclusive licensee from Saramar of the Trade Marks, together with certain patents, designs, technical know-how and other intellectual property, Sara Lee granted to Underworks an exclusive sub-licence to use the Trade Marks to manufacture, market, sell and distribute through retail and reseller distribution channels in Australia and New Zealand, men's socks and underwear, under the King Gee trademark, and children's socks and underwear, under the Stubbies trademark. 125 On 26 February 2001, Sara Lee, Sara Lee Corporation, which is incorporated in the State of Maryland, USA ('Sara Lee Corporation'), and Pacific Dunlop Limited ('Pacific Dunlop') entered into an instrument entitled 'Agreement for the Sale of Australian Business' ('the March Sale Agreement'). By clause 2 of the March Sale Agreement, Sara Lee agreed to sell and assign to Pacific Dunlop and Pacific Dunlop agreed to purchase and accept from Sara Lee an assignment of the Business (defined as the apparel business carried on by Sara Lee in Australia) together with certain assets, not including the Trade Marks. 126 Under clause 1.1 of the March Sale Agreement, the term 'Business Contracts' was defined as including all agreements and arrangements exclusively relating to the Business, to which Sara Lee was a party and which was, in whole or in part, executory as at the Effective Time (defined as 3 March 2001). That definition would include the benefit of the Sub-Licence, as well as the Head Licence. 127 By clause 11.1(b) of the March Sale Agreement, Sara Lee assigned to Pacific Dunlop, with effect on and from completion, which was to take place on 5 March 2001, the benefit of the Business Contracts in respect of which assignment was permitted without the consent of the other party to the contract. By clause 11.1(c), Sara Lee agreed to use its best endeavours, with the cooperation of Pacific Brands, to assign to Pacific Brands, with effect on and from completion, the benefit of the Business Contracts in respect of which assignment was permitted only with the consent of the other party to such contract. Under clause 11.2(a), if, having complied with clause 11.1, Sara Lee was unable to cause the novation or assignment of any Business Contract by and with effect from completion, then Sara Lee was required, with the cooperation of Pacific Dunlop, to continue to use its best endeavours to do so for a period of three months after completion. 128 The March Sale Agreement also recited that certain members of the Sara Lee Group (defined as Sara Lee Corporation and all its subsidiaries) had agreed to sell and assign certain trade marks to PD Licensing Pty Ltd ('PD Licensing') under a proposed Trade Mark Sale Agreement with Saramar. On 13 March 2001, Saramar, Sara Lee Corporation, PD Licensing and Pacific Dunlop entered into an instrument entitled 'Agreement for the Sale of Australian Trade Marks' ('the March Assignment'). By clause 2 of the March Assignment, Saramar agreed to sell and assign to PD Licensing and PD Licensing agreed to purchase and accept assignment from Saramar of, inter alia, the Trade Marks. 129 In the meantime, on 9 March 2001, Underworks had written to Sara Lee, relevantly saying: 'There has been recent press about Pacific Dunlop acquiring Sara Lee Apparel Australasia and its brands. As you know, we enjoy a sub-licence agreement with Sara Lee Apparel Australasia for the use of certain trade marks and intellectual property… Accordingly, I would appreciate receiving from you, as a matter of urgency, information as to the precise nature of the transaction between Sara Lee Apparel Australasia and Pacific Dunlop…' Sara Lee responded by email communication dated 13 March 2001 saying: 'I acknowledge receipt of your facsimile letter of 9 March… which… has been referred to me for response. Completion of the sale to Pac Dun took place today. As a consequence, the Stubbies and King Gee marks passed to Pacific Dunlop. The personnel employed in the Apparel business have generally also transferred, but notice has been given of your pre-existing interests… I am sorry that you have not previously been advised, however the number of parties in contract with Apparel was significant and accordingly, advance individual notification was not feasible.' 130 A further facsimile communication was sent from Sara Lee to Underworks on 13 March 2001, saying relevantly: 'I can confirm that Sara Lee Apparel (Australasia) Pty Ltd has sold its Australian Apparel business to Pacific Dunlop. In relation to the sub-licence granted to Underworks Pty Ltd, my understanding is that the sub-licence is being assigned to Pacific Dunlop, but this will need to be confirmed with our Legal Department…' On 15 March 2001, the following email communication was sent by Underworks to Sara Lee: 'Thank you for your email of 13 March 2001. I note that the Stubbies and King Gee marks passed to Pacific Dunlop on 13 March. I presume that Apparel has retained the right to licence the marks to us in accordance with the sub-licence agreement dated 15 November 2000. Please confirm that this sub-licence, which at the time of the transaction with Pacific Dunlop had run for less than four months of a potential 10 year term, is still in place.' Sara Lee responded on 23 March 2001 saying relevantly: 'In answer to your question Sara Lee did not retain any right of sub-licence in respect of the marks assigned. Rather Pac Dun accepted the obligations arising under the existing contracts…' 131 On 30 March 2001, lawyers acting for Underworks wrote to Sara Lee in the following terms: 'We act for Underworks Pty Ltd and have been provided with some correspondence relating to the recent sale by Sara Lee to Pacific Dunlop. We refer in particular to your email to our client of 23 March 2001. Our client was very surprised to learn that Sara Lee did not retain any right to sub-licence in respect of the marks assigned to Pacific Dunlop… … Underworks would never have contemplated entering into a licensing agreement with a competitor containing such clauses. It was entirely wrong of Sara Lee to act in a way which is clearly detrimental to Underworks and it is insufficient for you to merely refer Underworks to Pacific Dunlop, its major competitor. We would like to meet with you and our client to discuss how this issue is to be dealt with. Possible solutions include a partial reversal of the transfer so that Sara Lee remains as Sub-Licensor, or amendment to the existing agreement to deal with Underworks' concerns. We are quite happy to meet with Pacific Dunlop as well. However, we wish to make clear that we see this as an issue for Sara Lee.' 132 Sara Lee responded on 3 April 2001 saying: 'I refer to your letter of 30 March 2001 and advise that I shall discuss your concerns with Pacific Dunlop to endeavour to discover a position that may be more acceptable to your client. In the meantime however I would be grateful if you would provide me with further details concerning the alleged "wrong" and the legal effect of same since the "Transferability" clause specifically placed a prohibition on your client but notably no such prohibition on Sara Lee. Given the nature of the agreement it is submitted that this is quite appropriate, albeit that it does in this instance work to your client's disadvantage. Can you identify a contractual term which you are asserting we have breached?' 133 Underworks' lawyers replied on 6 April 2001 in the following terms: '… Quite apart from the question of the assignability, we reiterate that our client learnt of the assignment only four months into what is a potentially ten year sub-licence. On our instructions, at the time the sub-licence was being negotiated, your client was involved in a tender for its business and was aware that one of the potential purchasers was Pacific Dunlop. Even if Sara Lee was entitled to assign the sub-licence to Pacific Dunlop we believe that Sara Lee had a duty to inform Underworks that it was to be assigned and that one of the potential assignees was Pacific Dunlop. It is our contention that Sara Lee owed Underworks a fiduciary duty at all times especially when the possibility arose of an assignment which could damage Underworks… One way of dealing with Underworks concerns is to amend the sub licence and eliminate the clauses which cause concern …' There was no relevant response to that communication. 134 The parties have apparently proceeded on the basis that the communication summarised above constituted effective notice to Underworks of the purported assignment from Sara Lee to Pacific Dunlop of Sara Lee's rights under the Sub-Licence. That has significance in relation to the question of whether there was an effective assignment under s 12 of the Conveyancing Act 1919 (NSW) ('the Conveyancing Act'). I shall return to that question below. 135 On 30 November 2001, Pacific Dunlop, as guarantor, PD Licensing and seven other parties, as seller, and the first and second appellants, Pacific Brands Sport & Leisure Pty Ltd ('PB Sport & Leisure') and Pacific Brands Clothing Pty Ltd ('PB Clothing') respectively, and three other parties, as buyer, entered into an instrument entitled 'Sale of Business Agreement' ('the November Sale Agreement'). Clause 2.1 of the November Sale Agreement provided that, on completion, the seller was to sell and the buyer was to buy the Business Assets (as defined). The term 'Business Assets' was defined as including intellectual property licences to which the seller was a party, to the extent they relate to the Business (as defined), and the rights and interests of the seller, in trade marks and intellectual property licences, to the extent they relate to the Business. The term 'Business' was defined as the business carried on by the seller in Australia comprising the manufacture, marketing, sale and distribution of, inter alia, clothing and related apparel, including socks and underwear and sporting and leisure equipment and related apparel and footwear. 136 Clause 1.5(a) of the November Sale Agreement provided that a reference to the buyer, in the context of a reference to matters relating to the sale of the Business Assets of the Sport and Leisure Business, was to be take as a reference to PB Sport & Leisure. In the context of a reference to matters relating to the sale of the Business Assets of the Clothing Business, the reference was to be taken as a reference to PB Clothing. The term 'Sport and Leisure Business' was defined as meaning that part of the Business relating to sporting and leisure equipment and related apparel and footwear and workwear. The Sport and Leisure Business appears to have included the King Gee trademark. The term 'Clothing Business' was defined as meaning that part of the Business relating to clothing and related apparel including socks, underwear and intimate and outerwear garments, excluding clothing and related apparel relating to the Sport and Leisure Business. The Clothing Business appears to have included the Stubbies trademark. 137 By clause 8.1(a) of the November Sale Agreement, the seller and the buyer were required to use their best endeavours to transfer to the buyer on or as soon as possible after completion, inter alia, the Contracts. The term 'Contracts' was defined as agreements to which the seller was a party to the extent they relate to the Business. Under clause 8.1(b), a transfer under clause 8.1(a) was to be made by assignment in the form of the deed of assignment annexed to the November Sale Agreement. Under clause 8.1(c), if the consent of a third party was required for a transfer, the buyer and the seller were required to use their best endeavours to obtain that consent. 138 In order to effect an assignment to the Sub-Licence as contemplated by the November Sale Agreement one would have expected to see the following instruments: · deed of assignment from Pacific Dunlop to PB Sport & Leisure of the licence from PD Licensing in respect of the King Gee trademarks; · deed of assignment from Pacific Dunlop to PB Clothing of the licence from PD Licensing in respect of the Stubbies trademarks; · deed of assignment from Pacific Dunlop to PB sport & Leisure of the Sub-Licence in so far as it relates to the King Gee trademarks; · deed of assignment to PB Clothing of the Sub-Licence in so far as it relates to the Stubbies trademarks.

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140 On 30 November 2001, PD Licensing and PB Sport & Leisure entered into an instrument entitled Deed of Assignment ('the November Assignment'), whereby PD Licensing assigned to PB Sport & Leisure its rights, interest and title in and to, inter alia, the Trade Marks and all rights, if any, that PD Licensing had to take actions against third parties for infringement of the Trade Marks or any other rights relating to the Trade Marks. 141 The purported effect of the March Sale Agreement and the March Assignment was that PD Licensing was substituted for Saramar as owner of the Trade Marks and Pacific Dunlop was substituted for Sara Lee as the licensee of the Trade Marks and the sub-licensor of the Trade Marks to Underworks. Clearly, any purported assignment of the Sub-Licence occurred without the prior knowledge, and a fortiori without the consent, of Underworks, although Underworks was subsequently notified of the assignment 142 The purported effect of the November Assignment is that PB Sport & Leisure was substituted for PD Licensing as the owner of the Trade Marks. The purported effect of the November Sale Agreement is that PB Sport & Leisure was substituted for Pacific Dunlop as licensee of the King Gee trademark and sub-licensor of the King Gee trademark to Underworks and PB Clothing was substituted for Pacific Dunlop as licensee of the Stubbies trademark and sub-licensor of the Stubbies trademark to Underworks. One apparent effect is that any licence from Saramar to Sara Lee would have merged when PB Sport & Leisure was assigned both the Trade Marks and the licence in respect of the King Gee trademark. 143 Any such assignments occurred without the prior knowledge, and without the consent, of Underworks. There is no evidence of Underworks having been notified of purported assignment by Pacific Dunlop of its rights under the assigned Sub-Licence. However, the parties appear to have proceeded on the basis that Underworks was given notice of the purported assignment to PB Sport & Leisure and PB Clothing. No point seems to have been raised in relation to the purported assignment by Pacific Dunlop of part of its rights under the Sub-Licence to PB sport & Leisure and part of its rights to PB Clothing.

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TERMINATION OF THE SUB-LICENCE 144 On 15 August 2003, Ms Sonia Young sent a letter to Underworks by facsimile and by express post ('the Breach Notice'). In the Breach Notice, Ms Young was described as 'Marketing Manager - King Gee', although the Breach Notice itself purports to be a notice by PB Sport & Leisure. Underworks accepts that Ms Young, in sending the Breach Notice, was acting on behalf of PB Sport & Leisure and that the Breach Notice was capable of constituting written notice by PB Sport & Leisure to Underworks. 145 Although no point appears to have been made of it, the Breach Notice does not refer to PB Clothing, notwithstanding that it refers to breach of the Sub-Licence in relation to failure to exploit the Stubbies trademarks. The parties appear to have proceeded on the basis that the Breach Notice should be treated as constituting written notice from whichever companies became the assignee of Sara Lee's rights under the Sub-Licence. 146 The Breach Notice relevantly said as follows: 'I refer to the Trade Mark Sub-Licence Agreement dated 15 November 2000 made between Sara Lee Apparel (Australasia) Pty Ltd and Underworks Pty Ltd (the "Licence"). As you are aware, the rights and interests of Sara Lee… have, by the conduct of the parties, been assigned to Pacific Brands Sport & Leisure Pty Ltd ('Pacific Brands'). I am instructed that Underworks is currently in breach of various provisions of the licence… In accordance with clause 18.2(a) of the Licence, Pacific Brands hereby gives you written notice of the following breaches and requires those breaches to be remedied within 30 days of receipt of this letter, failing which Pacific Brands may elect to terminate the Licence…' Five breaches were purportedly particularised. Only three of the alleged breaches are presently relevant and details will be set out later. Those breaches related to: · failure to exploit the Trade Marks; · failure to submit marketing plans; · failure to provide audit reports in respect of third party facilities used by Underworks to produce licensed Products. 147 On 18 August 2003, Underworks sent a facsimile transmission addressed to Ross Taylor, the general manager of 'King Gee Apparel', bearing the date 'June 10, 2003'. The substantive part of the facsimile transmission was as follows: 'Please find our marketing plan for FO4 financial year. The 3pack continues to be the better selling style and projections for FO4 are as follows. 3pk Acrylic Nylon work sock - Projected wholesale sales - $900,000 Cotton Tough work sock - Projected wholesale sales - $500,000 Distribution will be through Big W, Target, Woolworths and Best & Less. Underworks will also participate with individual retailer off price and catalogue promotions We would also request that Underworks are notified of any King Gee promotions. This will enable us to have sufficient stock for any sales increases and be aware of your marketing programmes. Please advise if you require further details.' The facsimile bears a handwritten note 'Re-Sent 18/8'. Mr Sam Todaro, the managing director of Underworks, said that he first sent the communication on the date it bears. There was no evidence as to whether the facsimile transmission was in fact received by PB Sport & Leisure on 10 June 2003, although it is implicit in the primary judge's conclusions that it had been received by Mr Taylor on 10 June 2003. 148 On 21 August 2003, Ms Young sent an email transmission to Underworks relevantly saying: 'Ross passed the facts on that we received on the 18/8 of your marketing plan. This plan is very brief and does not meet the guidelines set out in our licence agreement. Could you please [sic] the additional information below in the Marketing Plan as specified in Clause 8.1 & 8.2… … …on behalf of Stubbies can you please provide a full Marketing Plan including everything as specified in Clause 8.1 & 8.2 of the licence agreement. Also wondering if you are going to show me the updated packaging. We changed our logo in October last year so it really needs to be updated asap.' 149 On 25 August 2003, Underworks responded as follows: 'No problem will address relevant details. Can you send me your marketing plan so we can tie in with your programme as well as our retailer promotions that we are awrae [sic] of… Please advise and I will address the marketing plan.' Ms Young responded on the same day attaching promotional material involving the King Gee trademark. Underworks acknowledged that material on 26 August 2003. On 27 August 2003, Ms Young sent a further email to Underworks drawing the attention to the fact that Underworks was selling King Gee socks 'with an incorrect logo'. 150 Underworks responded by email on 28 August 2003, submitting promotional material. The material attached to the email of 28 August 2003 made a greater effort to satisfy the requirements of Clauses 8.1 and 8.2 of the Sub-Licence. There was a representation of an 'UNDERWORKS' label and of the King Gee trademark. A table showed four King Gee promotions as follows: 151 In addition, the attached material included the following: 'PROMOTIONAL ACTIVITY · All retailers will be promoting within their catalogues to tie in with the promotion dates, therefore Underworks will not be providing any promotional material. · All orders have been placed for promotions and stock will be delivered 4 weeks prior to each promotion. · Target and Big W will be featuring the current sock packs within their catalogues without featuring the separate King Gee trademark. PROMOTIONAL EXPENDITURE · Big W have been given a 5% discount for their November catalogue for quantity of 4000 packs of 3 pairs. · Woolworths will receive a 10% discount on all packs sold during their 2 week promotions in August and November.' 152 On 22 September 2003, PB Sport & Leisure wrote to Underworks again. After referring to the Breach Notice, the letter of 22 September 2003 ('the Termination Letter') relevantly said: 'I am instructed that your company has not addressed, or has not adequately addressed any of the defaults listed in the [Breach Notice]. Although a marketing plan was received from your company by email on 18 August 2003, as advised to you by email by Sonia Young on 21 August 2003, the marketing plan did not comply with the particular requirements of clauses 8.1 and 8.2 of the [Sub-Licence]. Your company has made no attempt to address the numerous other breaches of [the Sub-Licence] as clearly set out in the Letter. Accordingly, in accordance with clause 18.2 of [the Sub-Licence], Pacific Brands hereby gives you written notice that [the Sub-Licence] is terminated with immediate effect.' [Original emphasis]

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THE PROCEEDING 153 By application filed on 13 November 2003, PB Sport & Leisure and PB Clothing claimed declarations that Underworks had infringed the Trade Marks and claimed injunctions restraining further infringement. The basis for those claims was that the Sub-Licence had been rescinded by the Termination Letter and that the continued use of the Trade Marks by Underworks was therefore an infringement. Underworks filed a cross-claim against Sara Lee and PB Sport & Leisure claiming declarations that the Sub-Licence continues in force and that the only parties to the Sub-Licence are Sara Lee and Underworks. PB Clothing was not a cross-respondent, notwithstanding that the Sub-Licence was said to have been assigned to PB Clothing in so far as it relates to the Stubbies trademarks. 154 On 15 April 2005, a judge of the Court ordered that the application be dismissed with costs. The primary judge also declared, on the cross-claim, that the Sub-Licence between Sara Lee and Underworks continues in force. The primary judge concluded that, to the extent that PB Sport & Leisure and PB Clothing founded their claim upon the assignment of the Sub-Licence as giving a right to terminate the Sub-Licence, the claim must fail. His Honour concluded that PB Leisure & Sport and PB Clothing did not, as a result of any assignment, acquire the right or power to terminate the Sub-Licence and that the Sub-Licence was a contract to which neither was a party. His Honour considered that, while the benefit of the Sub-Licence was assigned, with the result that PB Sport & Leisure or PB Clothing acquired certain rights, such as the right to receive royalties, the right to rescind for breach was not one of the benefits that was assigned. That conclusion was sufficient to dispose of the proceeding. 155 However, the primary judge also dealt with issues as to whether Underworks was in breach of the Sub-Licence, thereby triggering the power of termination in the Sub-Licence, and whether, if such a power of termination arose, PB Sport & Leisure or PB Clothing validly exercised the power or right that arose. His Honour concluded that the breaches alleged to have been committed were either not breaches or had been waived. Accordingly, there was no breach that could support the termination of the Sub-Licence. His Honour also concluded that, even if there were breaches that could support termination, the purported termination of the Sub-Licence was effected in bad faith and, accordingly, would have been ineffective. 156 Notice of Appeal was filed on behalf of PB Sport & Leisure, PB Clothing and Sara Lee on 5 May 2005. While the Notice of Appeal raises a number of grounds, the appeal involved three distinct issues as follows: · whether there was a breach of the Sub-Licence by Underworks; · whether, if there were a breach, PB Sport & Leisure and PB Clothing were entitled to exercise the contractual right of termination under the Sub-Licence or any common law right of termination for repudiatory breach; · whether, if there were a breach and PB Sport & Leisure and PB Clothing were entitled to exercise the contractual right of termination, there was an effective termination by PB Sport & Leisure or PB Clothing pursuant to the contractual right under the Sub-Licence. 157 The question of termination of the Sub-Licence is irrelevant if the Court concludes that the rights of Sara Lee under the Sub-Licence, including the contractual right to terminate or a general law right to terminate for repudiatory breach, was not effectively assigned. While Sara Lee, the original contracting party with Underworks, was not an applicant in the proceeding, Sara Lee became a party to the proceeding by reason of the cross-claim filed by Underworks. No point appears to have been taken by Underworks as to want of a necessary party in relation to the question of assignability of the Sub-Licence. It appears that the parties have proceeded on the basis that, if the Sub-Licence was assignable in Equity, there has been an effective assignment to one or other or both of PB Sport & Leisure and PB Clothing. 158 If the appeal is dismissed on the basis that there was no effective assignment or that any purported termination was affected by insufficiency of notice or bad faith, the question of whether there was a breach of the Sub-Licence may be material to any future action of Sara Lee, since Sara Lee is a party to the appeal. Sara Lee was a party, as a cross respondent, to the proceeding at first instance and Underworks is a party as respondent and as cross-claimant at first instance and as respondent to the appeal. Both have had an opportunity to be heard on the question of breach. There is, therefore, a reason for expressing a view on the question of breach.

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CLAUSE 4.3 - FAILURE TO EXPLOIT THE TRADE MARKS 160 Clause 4.1 of the Sub-Licence provides that Underworks must use the King Gee trademark only with respect to men's underwear and socks and that the Stubbies mark must only be used by Underworks with respect to children's socks and underwear. Clause 4.3 then provides that Underworks must 'exploit the Products within the Territory to the best advantage of the parties'. The language of clause 4.3 is somewhat curious in referring to exploitation of 'the Products' rather than exploitation of the Trade Marks. The term 'Products' is defined as meaning, for the King Gee trademark, men's socks and underwear and, for the Stubbies trademark, children's socks and underwear. 161 Read together, clauses 4.1 and 4.3 have the effect that the obligation imposed on Underworks is to exploit the King Gee trademark with respect to men's underwear and socks and to exploit the Stubbies trademark with respect to children's socks and underwear. Whether that obligation has been performed will depend upon the meaning to be attributed to the term 'exploit'. 162 Underworks contended that clause 4.3 does no more than impose an obligation on Underworks to exert itself to use the Trade Marks. On that basis, it says, the requirement is only to sell Products under Stubbies trademark where there is an available market for them or a profit is to be made. Further, Underworks says that exploit means something more than 'use', because that word appears elsewhere in clause 4.3. Hence, Underworks says, there was no breach of clause 4.3 because considerable efforts had been made to find a market for children's socks and underwear bearing the Stubbies trademark. Underworks also contends that, when PB Sport & Leisure and PB Clothing did not take advantage of the offer by Underworks to sell products under the Stubbies trademark, they intimated that the need to exploit the Stubbies trademark in order to avoid removal from the Register of Trade Marks was not a real concern. 163 Underworks relied upon evidence given by Mr Sam Todaro as to the efforts made by him to find a market for children's socks and underwear under the Stubbies trademark. He gave evidence of repeated approaches to the usual licensed channels that were unsuccessful after September 2000 when those channels became uninterested in children's socks and underwear under the Stubbies trademark. However, there is no finding that the Stubbies trademark could be used only if children's socks and underwear were sold at a loss. There was no finding that it was impossible to sell children's socks and underwear under the Stubbies trademark. 164 It was common ground that Underworks did not sell socks or underwear bearing the Stubbies trademark. The primary judge found that, although Underworks made reasonable efforts to market those Products, it was simply unsuccessful in that regard. However, there was no finding by his Honour that there was a negative reaction to the Stubbies trademark. The fact that Underworks were unable to sell children's socks and underwear under the Stubbies trademark may equally be explained by the quality of the Products rather than a negative reaction to the Stubbies trademark. 165 The primary judge observed that, if clause 4.3 imposes an obligation upon Underworks to effect sales of Products bearing the Stubbies trademarks, there has been a breach of the clause. While his Honour considered that the ordinary meaning of the word 'exploit', when used in the present context, could convey the notion of the 'successful exploitation of the products bearing the mark, that is turning their use (by sale) to profit', his Honour concluded that that is not the meaning that should be given to the word. However, while his Honour gave reasons for rejecting that meaning, his Honour did not actually attribute a meaning to the word. 166 The primary judge appears to have concluded that the obligation imposed by clause 4.3 was to make reasonable efforts to market children's socks and underwear under the Stubbies trademark and that it discharged that obligation. Having regard to the conclusion reached as to assignment of the Sub-Licence, his Honour made no findings of primary fact as to the efforts made by Underworks to market children's socks and underwear. 167 In ordinary English, 'to exploit' means to act with effect, exert oneself, make use of, utilise for one's own end or take advantage (Shorter Oxford English Dictionary). However, the word in clause 4.3 is qualified by the addition of the phrase 'to the best advantage of the parties'. That qualification does not, as a matter of ordinary English, relieve Underworks of the primary obligation to exploit the Trade Marks, since making use of or utilising the Trade Marks would be to the advantage of both parties. Under clause 5 of the Sub-Licence, royalties were payable by Underworks by reference to 'Net Sales'. That term was defined, in essence, as meaning the gross proceeds of sale or other disposition of the Products. Thus, to exploit to the best advantage of Sara Lee would be to sell at as high a price as possible. That would hardly be disadvantageous to Underworks: the greater the price, the greater the advantage to both parties. 168 The obligation of Underworks was to make use of the Stubbies trademark in relation to the sale of children's socks and underwear. It failed to do so. There was a continuing breach of clause 4.3 by Underworks as at the date of the Breach Notice.

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CLAUSE 8.2 - FAILURE TO SUBMIT MARKETING PLANS 169 Clause 8.1 of the Sub-Licence required Underworks to prepare and submit, prior to 30 November 2000, a marketing plan for the Products, containing particulars of all labels, advertising, promotional and other related material, together with schedules for proposed production and sales targets, sales release dates, methods of distribution and sale, promotional expenditure and details of any other marketing programs. The marketing plan was also to include a detailed explanation of the proposed manner of representation of the Trade Marks in the promotional and advertising program. 170 Clause 8.2 then provided that, thereafter, prior to 15 June in each year, Underworks was to prepare and submit, in respect of the following year, a marketing plan 'in similar format'. Under clause 8.3, the marketing plan was to include a description of the advertising and promotional concepts. Clauses 8.1 to 8.3 of the Sub-Licence must be read in the commercial context of a trade mark licence, providing for large scale marketing in respect of products bearing well-known trade marks. 171 The document dated 10 June 2003 contained no particulars of labels, advertising, promotional or other related materials. Apart from estimated projected wholesale sales, it contained no schedules for proposed production and sales targets. There was no reference to release dates or promotional expenditure. While there was a reference to distribution through Big W, Target, Woolworths and Best & Less, the method of distribution was not mentioned. Further, there was no detailed explanation of the proposed manner of representation of the Trade Marks in the promotional and advertising program. Finally, there was no description of the advertising and promotional concepts included in the document. 172 Clearly, for these reasons, the document dated 10 June 2003 did not satisfy the requirements of clauses 8.1 and 8.3. Even if that document was given to PB Sport & Leisure on the date it bears, Underworks had not complied with clauses 8.1 and 8.3 as at the date of the Breach Notice. Accordingly, Underworks was in breach of the Sub-Licence as at the date of the Breach Notice. 173 Underworks draws attention to the wording of clause 8.2, which requires only that the marketing plan in subsequent years be 'in similar format'. Underworks says that the clause should be considered in the light of the first marketing plan, which the parties had before them. Underworks says that, however deficient in detail previous marketing plans may have been, there was no breach of the Sub-Licence because neither Sara Lee nor PB Sport & Leisure complained about the lack of detail until the Breach Notice. However, while such a contention could conceivably give rise to some estoppel, it could not be an answer to an assertion that there was a failure to comply with clause 8.2 when the purported marketing plan did not satisfy the requirements of clauses 8.1 and 8.3. 174 In addition, Underworks also contended that performance of any obligation to provide marketing plans had been dispensed with because of refusal on the part of PB Sport & Leisure to progress further under the Sub-Licence until there had been a novation of the Sub-Licence. Underworks relies on emails from Ms Young of 31 July 2002 and 1 November 2002. 175 On 31 July 2002, Ms Young sent an email to Mr Todaro relevantly saying as follows: 'Ross has jsut [sic] informed me you have sent through a singlet for approval. Sam I really have to say we cannot approve any progress going forward until you have signed the new contract. You have now had the contract since the 3rd of May which is ample time to get this sorted out. Ross and I would like to actually have a meeting with you within the next couple of weeks to discuss our relationship going forward… Sam the most critical issue on the table is you [sic] adherence to our Code of Conduct. This means we will need to have a very thorough audit carried out of the factories being used to manufacture King Gee products… Can you please give me a call so we can set up a meeting when you are next in Sydney.' 176 On 1 November 2002, an email was sent to Underworks from Pacific Dunlop relevantly saying: 'Thanks for your fax requesting approval of the Yeh Hung Textile Co factory and confirming exclusion all sub contract facilities. Your attached "Schedule 4" did however once again bring to our attention the fact that the Deed of Novation has yet to be signed. Until this is done no approval can be given. Would you therefore, please give the signature of the Deed of Novation your urgent attention so that we may look further at the approval process.' 177 Underworks' contention amounts to the assertion of a contractual variation of the Sub-Licence. It is one thing to say that, in reliance upon a representation by PB Sport & Leisure or Pacific Dunlop that strict performance of the obligations under the Sub-Licence would not be required, Underworks did not perform its obligations. It is quite a different thing to say that performance was suspended. The communications cited above could not amount to a contractual variation of the Sub-Licence. Indeed, subsequent communications make clear that that was not the intention of the parties. 178 For example, on 6 November 2002, Ms Young sent an email to Mr Todaro relevantly saying as follows: 'Just a couple of issue [sic] prior to your new sock packaging being completed. How is to going by the ways?? … Sam this then raises the continuing issue that the new agreement has not been signed. I know you are relying on Alan and Ross talking but surely there is a way we can sort this out. It has now dragged on for 5 months. Sam can you please make sure I am show the pacgaging [sic] for sign-off and the wroding [sic] changed as required.' 179 There was a breach of the requirements of clause 8.2, as explained by clause 8.1 and clause 8.3. That is to say, Underworks failed to provide, by 15 June 2003, a marketing plan in the format required by clauses 8.1 and 8.3.

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CLAUSE 12 - FAILURE TO PROVIDE AUDIT REPORTS 180 Clause 11 of the Sub-Licence contained an acknowledgement by Underworks of receipt of 'a copy of Sara Lee Corporation's Global Business Standards and Supplier Selection Guidelines ('the Guidelines')'. Clause 12 then provided that Underworks must immediately, at its own expense, have each facility it uses to produce Products independently audited 'for compliance with this or such similar Guidelines as Sara Lee Corporation may require from time to time'. Clause 12 also provided that audits to ensure compliance with the Guidelines were to be conducted at least annually and that Underworks was to provide 'Sub-Licencor' with a copy of the audit report. 181 It was common ground that no audit as required by clause 12 was carried out on any facility where Underworks' Products were manufactured in the year ended 30 December 2002 nor in any earlier year during the currency of the Sub-Licence. The primary judge concluded, therefore, that 'strictly speaking' Underworks was in breach of clause 12. 182 However, the primary judge found that the breach had been waived. His Honour observed that neither Sara Lee nor Pacific Dunlop had required the audit to be conducted in earlier years and made no complaint when none was undertaken. His Honour found, without saying anything further, that, in the circumstances, Sara Lee would be estopped from relying on a breach of clause 12 and that that estoppel would also bind PB Sport & Leisure and PB Clothing. His Honour also found, without saying anything further, that PB Sport & Leisure and PB Clothing would, in their own right, be estopped from relying upon the breach. His Honour observed that it was simply not possible to sit back for one or more years after the audit should have been performed and then complain about Underworks' failure to arrange for the audits to be conducted and to submit reports. 183 Clause 12 clearly requires audits to be conducted at least annually. By the time of the Breach Notice, the Sub-Licence had been in operation for over two and a half years. Whether or not there had been a failure in the first two years to provide audit reports, there was a continuing obligation to provide an audit report in respect of each year. There was no finding that Underworks had in some way acted to its detriment in reliance upon an implied representation in the past that compliance would not be required. There is no basis for any estoppel. Further, there is no finding that would justify a conclusion that there had been a contractual variation of the Sub-Licence that would have released Underworks from its obligation to have an audit carried out. 184 There was a breach of clause 12 as at the date of the Breach Notice.

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GENERAL PRINCIPLES AS TO ASSIGNMENT 187 The word 'contract' is derived from the Latin 'contrahare', meaning to draw together. A contract gives rise to 'obligations'. That word is derived from the Latin 'obligare', meaning to bind together. Those notions led Roman lawyers to say 'nomina ossibus inhaerent': that is to say, contractual claims cling to the bones (of the contracting parties). Accordingly, in classical Roman law, contractual obligations, being personal, could not be assigned: a contractual claim could not be separated from the person of the contracting parties and could be enforced only by a contracting party against a contracting party (see R Zimmermann, The Law of Obligations- Roman Foundations of the Civilian Tradition, Juta & Co Ltd, Cape Town, 1990). The ingenuity of Roman lawyers devised means for circumventing that inconvenient principle, but the means were often cumbersome. The two principal means were novatio, which required the cooperation of both contracting parties, and procuratio in rem suam, which involved the substitution in a court action of a representative of the contracting party seeking to enforce the contract: the representative would be the intended assignee, who would agree with the intended assignor to keep for himself the proceeds of the court action (see Gaius, The Institutes of Gaius, translated with an introduction by WM Gordon and OF Robinson, Duckworth, London, 1988 at 4.83). 188 By the time of Justinian, an action was allowed in the name of an assignee whenever the parties intended to transfer a claim (see Zimmermann op cit p62). Nevertheless, the Digest incorporated the classical sources dealing with novatio and procuratio in rem suam, creating considerable confusion for mediaeval jurists, since the existence of novatio and procuratio was seen to be inconsistent with the assignability of contractual rights. The confusion continued in Europe through the Middle Ages to the 19th Century (Zimmermann, op cit pp 62-66). 189 Under the old common law rule, contractual rights were not assignable without the consent of both contracting parties. The rule was probably derived from Bracton's De Legibus Consuetudinibus Angliae, itself based on the Corpus Iuris Civilis, and was therefore based on the classical Roman law notion that a contractual right was a right of a personal nature. Later, the common law rules against maintenance and champerty reinforced the principle (see Chitty on Contracts, 29th edn, ed HG Beale et al, Sweet & Maxwell, London, 2004 at 19-001). 190 It was not until the passing in England of 36 and 37 Vic c.66 ('the Judicature Acts'), that a general right to assign choses in action was created in England. Section 25(6) of the Judicature Acts, which was the prototype of s 12 of the Conveyancing Act 1919 (NSW), was an incident of the amalgamation of the superior courts of Common Law and Equity in England, with a view to the fallacy of the rules of Common Law and Equity, leading to the administration in the new Supreme Court of Judicature of one system of law in place of the two previously known as Common Law and Equity. The intention was that in all matters in which there was a conflict or variance between the rules of Equity and the rules of the Common Law with reference to the same matter, the rules of Equity would prevail. 191 The phrase 'chose in action', as used in s 12 of the Conveyancing Act, refers to all personal rights of property that can be claimed or enforced only by action and not by taking physical possession. It includes rights that were probably not intended to be assignable by virtue of s 25(6), such as shares in an incorporated company. The phrase, therefore, should be read down in s 12 to mean a right that the Common Law looks on as not assignable by reason of its being a chose in action, but that a court of Equity deals with as being assignable. In the result, therefore, a contractual right will be assignable under s 12 of the Conveyancing Act if the contractual right was, prior to the passing of the Judicature Acts, assignable in Equity but not at Common Law (see Torkington v Magee [1902] 2 KB 427 at 430-431). 192 One consequence of a chose in action being assignable is to qualify the common law doctrine of privity of contract. The common law doctrine of privity of contract means generally that a contract cannot confer rights on any person except the parties to it and preclude a person who is not a party to a contract from taking the benefit of, or being bound by, the contract (Chitty op cit at 18-003). The rules as to assignment constitute an exception to that doctrine (Chitty op cit at 18-073). 193 Because s 25(6) of the Judicature Acts was intended to assimilate the Common Law rules to the rules of Equity, the assignability of contractual rights in any given case is generally governed by the rules of Equity existing before the Judicature Acts. Those rules apply to statutory assignments under s 12 of the Conveyancing Act (Chitty op cit at 19-042). 194 Rights arising under ordinary commercial contracts are prima facie readily assignable (Chitty op cit at 19-055). However, if rights arising under a contract are declared by the contract to be incapable of assignment, a purported assignment by one contracting party will be invalid as against the other contracting party. Assignment of certain rights will also be prohibited by statute or may be void on grounds of public policy. Similarly, under the Common Law, a chose in action may not be assignable if the assignment savours of maintenance or champerty. Further, the benefit of a contract may not be assignable in a case where the personality or identity of the parties is significant, that question being determined objectively having regard to the nature of the contract and the subject matter of the rights assigned (see Chitty op cit at 19-043 to 19-054).

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ASSIGNABILITY OF THE SUB-LICENCE 195 The Sub-Licence is not an instrument in which the drafter should feel any sense of pride. It exhibits a degree of carelessness on the part of those responsible for its preparation. It is likely that it is the result of following a precedent without real care to ensure that the instrument being prepared was appropriate for the transaction under contemplation. 196 The Sub-Licence is expressed to be made between two companies. Sara Lee is defined as 'Sub-Licensor' and Underworks is defined as 'Sub-Licensee'. Those terms are then used throughout the Sub-Licence, although there are at least three places where the wrong term is employed. 197 Three separate provisions of the Sub-Licence expressly address the question of assignment. They are as follows: · Clause 1.2 deals with 'Interpretation' and sub-clause 1.2(d) provides as follows: '(d) A reference to a party to this Agreement or any other agreement or document includes the party's successors and permitted substitutes or assigns.' [Emphasis added] · Clause 2.1 is the pivotal provision of the Sub-Licence and relevantly provides as follows: '2.1 The Sub-Licensor grants to the Sub-Licensee, with no rights to assign, (subject to Clause 14), charge or sub-license, an exclusive sub-licence to use the Licensed Marks… during the Term. …' [Emphasis added] · Clause 14 relevantly provides as follows: '14.1 The Sub-Licensee must not at any time without the written consent of the Sub-Licensor (which may be withheld at the Sub-Licensor's sole discretion) assign, sell, lease, transfer or otherwise dispose of or encumber any of its rights and obligations under this Agreement…' [Emphasis added] 198 It is clear from those provisions that the parties contemplated that the Sub-Licence was assignable by Underworks, albeit only with the written consent of Sara Lee. There is no provision for assignment by Sara Lee, whether with or without the consent of Underworks. On the other hand, clause 1.2(d) clearly contemplates the possibility of assignment by each party. In the absence of anything further, therefore, one would conclude that the Sub-Licence was intended by the parties to be assignable by Sara Lee without the need for consent on the part of Underworks but that the Sub-Licence was assignable by Underworks only with the consent of Sara Lee. 199 The Sub-Licence relates to the use of trade marks. A trade mark is freely assignable under the Trade Marks Act. The relationship between the owner of a trade mark and a user of the trade mark and the subject matter of such an arrangement is not one that would ordinarily be regarded as personal to either party. Accordingly, one would not expect, in ordinary circumstances, to find in a licence to use a trade mark any restriction on the right of the owner of a trade mark to assign the trade mark, subject to the assignment being made subject to the rights of the licensee. 200 On the other hand, one would ordinarily expect that there would be some restriction imposed on assignment by a licensee, if for no other reason than the provisions of the Trade Marks Act dealing with the control by the owner of a trade mark of an authorised user of the mark. Section 8(1) of the Trade Marks Act provides that a person is an authorised user of a trade mark if the person uses the trade mark in relation to goods or services under the control of the owner of a trade mark. Under s 8(2), the use of a trade mark by an authorised user of the trade mark is an authorised use of the trade mark to the extent only that the user uses the trade mark under the control of the owner of the trade mark. Section 8(3) provides that, if the owner of a trade mark exercises quality control over goods or services dealt with or provided in the course of trade by another person and in relation to which the trade mark is used, the other person is taken, for the purposes of s 8(1), to use the trade mark in relation to the goods or services under the control of the owner. As will appear, there are provisions of the Sub-Licence that might be taken to constitute control by Sara Lee of Underworks. As I have indicated, the licence from Saramar to Sara Lee was not in evidence. 201 Clause 3.1 of the Sub-Licence relevantly provides as follows: 'The Sub-Licensor (sic) hereby acknowledges that the Licensor is the owner of all right, title and interest in and to the Licensed Marks…. The Sub-Licensee further acknowledges that the Sub-Licensor is the exclusive licensee of the Licensors (sic) relative to the Products…' It is common ground that the first reference to 'Sub-Licensor' is erroneous and should be a reference to 'Sub-Licensee'. 202 Clauses 8, 10, 11, 12 and 13 of the Sub-Licence are directed to control. Those clauses relevantly provide as follows: '8.1 In order for the Sub-Licensor to assess the way in which the Sub-Licensee proposes to use the Licensed Marks, the Sub-Licensee shall prepare and submit… to the Sub-Licensor for its review a marketing plan for the Product containing particulars of all labels, advertising, promotional and other related material together with schedules for proposed production and sales targets, sales release dates, methods of distribution and sale, promotional expenditure and details of any other marketing programs… … 8.5 In order to review brand positioning and ensure that the Sub-Licensor's reputation in its products and brands is maintained, the Sub-Licensee shall at its own cost submit to the Sub-Licensor concept samples of each line of Product to be manufactured or sold and to be marketed by the Sub-Licensor… for approval. … 8.7 The Sub-Licensee shall only use the Licensed Marks on products, packaging, labels, advertising and promotional materials in the form and format approved in writing by the Sub-Licensor PROVIDED THAT the Sub-Licensee may indicate its corporate name as manufacturer of the Products with the notation that it does so under sub-licence from Sara Lee Apparel (Australasia) Pty Ltd. … 10 APPROVED MANUFACTURING FACILITIES Licensor and Sub-Licensor are committed to having their products produced in manufacturing facilities that operate under responsible, safe and humane conditions. To that end, the Sub-Licensor agrees that the Sub-Licensee shall be entitled to manufacture the Products in only those manufacturing facilities (third-party or owned) for which Sub-Licensee has obtained Sub-Licensor's prior written approval… Sub-Licensor hereby approves the use of the manufacturing facilities listed on Schedule 3 attached hereto… Sub-Licensee acknowledges that Sub-Licensor may require Sub-Licensee to provide, at Sub-Licensee's expense, evidence of satisfactory working conditions at the facility, including, but not limited to, independent third-party audits by firms approved by Sub-Licensor. … 11. GUIDELINES The Sub-Licensee acknowledges receipt of a copy of Sara Lee Corporation's Global Business Standards and Supplier Selection Guidelines (the "Guidelines") and shall provide the Guidelines to any and all vendors or manufacturers appointed under this Agreement. Licensor shall provide Sub-Licensee with a sufficient number of copies of the Guidelines at no cost to Sub-Licensee… Sub-Licensee shall cause the Guidelines to be posted at all times in facilities where Products are manufactured. … 12 AUDITS Sub-Licensee shall… have each facility (third-party or owned) it uses to product [sic, scilicet produce] Products independently audited by a firm approved by Sub-Licensor, for compliance with these or such similar Guidelines as Sara Lee Corporation may require from time to time. Audits to ensure compliance to the Guidelines shall be conducted at least annually. … 13 INSPECTION RIGHTS AND QUALITY CONTROL 13.1 Sub-Licensor retains the right… to conduct its own or independent third-party inspection and audit of Sub-Licensee and any third-party manufacturer with [sic, scilicet which] manufactures the Products for compliance with the Guidelines or such similar guidelines as Licensor may establish or be subject to from time to time. 13.2 Licensor and Sub-Licensor encourage Sub-Licensee and all of Sub-Licensee's manufacturers and subcontractors to voluntarily participate in the Worldwide Responsible Apparel Production ("WRAP") factory certification program. If Sub-Licensee and all facilities producing the Products become WRAP certified (and remain certified periodically), Sub-Licensee shall provide proof of such certification to Sub-Licensor as required, and shall be exempt form [sic] the provisions of clause 12 above… 13.3 Sub-Licensee shall provide to Sub-Licensor at Sub-Licensor's request for the purposes of reasonable quality control testing such of the Products as may be specified by Sub-Licensor and/or Licensor, as the case may be. 13.4 Products, packaging, labels, advertising or promotional material which in the reasonable opinion of the Sub-Licensor fails to attain the requisite quality standard shall upon written notification from Sub-Licensor or Licensor be immediately withdrawn from product, corrected or destroyed.' 203 The term 'Licensor' is used in those clauses. That term is defined as meaning Saramar. However, Saramar is not a party to the Sub-Licence. There are also references to 'Sara Lee Corporation' and to Sara Lee Corporation's 'Guidelines' (as defined). However, there is no other indication in the Sub-Licence as to the identity of Sara Lee Corporation or how Sara Lee Corporation may 'require' compliance with 'such similar Guidelines'. 204 The references in the clauses described above to 'Licensor' and 'Sara Lee Corporation' may be significant in relation to the assignability of the Sub-Licence by Sara Lee. There is nothing in the Sub-Licence to suggest any particular connection between Sara Lee and Saramar. Thus, to the extent that rights are purportedly reserved to Saramar as 'Licensor', there is nothing exceptional in the provisions. That is to say, if Sara Lee assigned the benefit of its licence from Saramar, it would do so subject to the Sub-Licence but Saramar would want to ensure that Saramar, as owner of the trade mark, could continue to exercise the same degree of control. 205 On the other hand, having regard to the similarity of names, an inference can be drawn that there is some connection between Sara Lee and Sara Lee Corporation. However, why Sara Lee Corporation would have an interest in the manufacture of Products is not entirely clear. Neither Saramar nor Sara Lee Corporation is a party to the Sub-Licence. It would be open to an assignee from Sara Lee of the benefit of the Licence from Saramar and the benefit of the Sub-Licence to Underworks to enforce the provisions of the clauses summarised above just as well as Sara Lee could enforce them. Similarly, there is nothing in the Sub-Licence to indicate a particular significance, so far as Underworks is concerned, as to the identity of Saramar or Sara Lee Corporation in relation to the matters that are the subject of the clauses to which I have referred. 206 Clause 4 of the Sub-Licence deals with 'USE OF LICENSED MARKS'. Under clause 4.1, Underworks is to use the King Gee Mark only with respect to men's underwear and socks and the Stubbies Mark is to be used by the Sub-Licensee only with respect to children's socks and underwear. Clause 4.2 prohibits Underworks from exporting, selling or marketing directly or indirectly beyond the Territory (as defined). Clause 4.3 then provides that Underworks must 'exploit the Products within the Territory to the best advantage of the parties'. Clause 4.4 provides that Underworks must not be a party to any act likely to prejudice the Licensed Marks or the commercial rights to which the Licensor and the Sub-Licensor are entitled. 207 Clause 4.3 may have been directed toward s 92(1) of the Trade Marks Act. Under s 92(1), a person may apply for a trade mark to be removed from the Register. One of the grounds on which such an application may be made is that the trade mark has remained registered for a continuous period of three years and at no time during that period has the registered owner used the trade mark in relation to the goods to which the application relates. Once exclusive licence to use the Trade Marks in Australia had been granted, Sara Lee may not be able to avoid a possible application under s 92 if Underworks did not use the Trade Marks. Clause 4.3, therefore, has some significance in the context of the overall effect of the Sub-Licence as a licence in relation to the use of registered trade marks. 208 On the other hand, exploitation of the Products to the best advantage of the parties may depend upon the identity of the parties. That is to say, use of the Trade Marks that would be to the advantage of Sara Lee would not necessarily be a use that would be to the advantage of an assignee, such as PB Sport & Leisure, and vice versa. Clause 4.3, therefore, could be seen as militating against assignment by Sara Lee without the consent of Underworks. 209 Clause 5 deals with 'ROYALTY PAYMENTS'. Clauses 5.1 and 5.2 deal with the calculation of royalties. Clause 5.3 provides for payment of royalties and clause 5.4 requires the Sub-Licensee to provide a written statement with each payment of royalty showing sales of Products, by type and style, as well as how the royalty was computed. Clause 5.8 requires that 'Sub-Licensor [sic] shall provide monthly reporting to the Sub-Licensor… by customer, by brand, by category'. The first reference to 'Sub-Licensor', of course, is another example of careless drafting and should refer to 'Sub-Licensee'. 210 Clause 5.5, however, provides for the Sub-Licensee to keep accurate and complete books and records of account concerning its manufacture, promotion, sale and distribution of the Products. The Sub-Licensee is to permit its books and records of account to be examined once per annum upon reasonable notice. Such inspections are to be made 'by an independent accountant appointed by the Sub-Licensor'. The function of the accountant is 'to verify records, statements and net proceeds'. That is the information that the Sub-Licensee is required to furnish in any event. Underworks suggests that such a provision is unlikely to have been intended to be exercisable by a competitor. However, the independent accountant is not required to disclose commercially confidential information to the Sub-Licensor and the Sub-Licensor would not be entitled to be given such information. 211 The reference in clause 8.7 to Sara Lee by name is significant. If the rights of Sara Lee under the Sub-Licence were effectively assigned, it would be reasonable to read the Sub-Licence as though the name of the assignee appeared wherever 'Sub-Licensor' appeared. However, it is more difficult to read the express reference to 'Sara Lee Apparel (Australasia) Pty Ltd' as a reference to any entity other than Sara Lee. Having regard to the carelessness in the drafting of the Sub-Licence, it may be possible to read 'Sara Lee Apparel (Australasia) Pty Ltd' in clause 8.7 as though it says 'Sub-Licensor'. On the other hand, if it is not possible to read the clause in that way, the clause is a firm indication that the identity of Sara Lee was of importance to the parties, such that the Sub-Licence would not be regarded as assignable. 212 Clause 9 deals with 'CONFIDENTIALITY'. Clause 9.1 relevantly provides: 'All commercially sensitive information made available by the Sub-Licensee, the Sub-Licensor or the Licensor (the "Confidential Information") is done so in strict confidence and shall be kept strictly confidential by the other party/parties.' Apart from the odd syntax, it may be difficult to determine precisely how clause 9.1 would operate in the event of assignment. 213 Under the terms of the Sub-Licence, a significant measure of co-operation between the Sub-licensor and the Sub-Licensee would be required. Thus, giving of approvals for new products, packaging and manufacturing facilities and marketing programs require the exercise of individual discretion. Underworks says that one of the background facts that was known to the parties to the Sub-Licence was that Sara Lee and Underworks were not competitors. The provisions to which Underworks draws attention, where discretion is involved, may operate in a totally different context where Sub-Licensor and Sub-Licensee are competitors. That consideration suggests that the identity of Sara Lee was of importance. 214 The references to Sara Lee Corporation and to Sara Lee by name, in the manner described above, can be explained as incidents of careless drafting. Some of the provisions described above point towards assignability on the part of Sara Lee, without any need for consent on the part of Underworks. However, the extent of the discretions conferred upon Sara Lee and Sara Lee Corporation suggests that the identity of Sara Lee was significant. On balance, I consider that the Sub-Licence would not have been assignable in equity and, accordingly, was not assignable at law pursuant to s 12 of the Conveyancing Act. That would be sufficient to dispose of the appeal.

[54]

Failure to Exploit the Trade Marks 218 The Breach Notice relevantly says as follows: '1. Pursuant to clause 4.2 [sic] of the Licence, Underworks is required to exploit childrens socks and underwear bearing the Stubbies trade mark within the territory of Australia and New Zealand. As far as we are aware, Underworks is not currently selling socks or underwear under the Stubbies trade mark.' 219 The reference to clause 4.2 of the Sub-Licence was obviously not intended. By clause 4.2, Underworks was prohibited from exporting, selling or marketing the Products beyond Australia and New Zealand. Item 1 of the Breach Notice refers expressly to a requirement for Underworks to exploit children's socks and underwear bearing the Stubbies trade mark. The recipient of the Breach Notice could not have failed to realise that there was an error and that the intended reference was to clause 4.3 of the Sub-Licence. 220 The Breach Notice does not purport to give notice of 'the required remedy'. Rather, the Breach Notice simply says that PB Sport & Leisure requires 'the following breaches' to be remedied within 30 days. On one approach, the only remedy for a breach consisting of failure to exploit children's socks and underwear bearing the Stubbies Trademark is to commence exploiting. That, however, gives rise to the question of just what is required in order to exploit those Products. 221 Clearly enough, some lead time would be required before such Products could be available for marketing, selling and distributing within the Designated Channels as contemplated by clause 2.1. Clause 18.2(a) contemplates remedy of a breach as reasonably required by Sara Lee. That indicates that the remedy of which notice is to be given is one that could reasonably be effected within 30 days. Thus, in order to trigger the right of termination, the notice must specify a remedy that it would be reasonable to effect within 30 days. 222 The Breach Notice gives no particulars of the steps that PB Sport & Leisure required Underworks to take in order to 'exploit' the Products. Having regard to the terms of the licence granted by clause 2.1, exploitation must entail manufacturing, marketing, selling and distributing the relevant Products, namely, children's socks and underwear. No attempt is made in the Breach Notice to specify what manufacturing, marketing, selling or distribution of such Products is required. I do not consider that the Breach Notice satisfied the requirements of Clause 18.2(a) of giving written notice of the required remedy for the breach of clause 4.3. Further, I do not consider that the breach, or the failure to comply with the Termination Letter, is evidence of an intention not to be bound by the Sub-Licence that would give rise to a common law right to rescind for repudiation.

[55]

Failure to Submit Marketing Plans 223 The primary judge observed that Ms Young was mistaken in her belief that Underworks had not submitted a marketing plan by 15 June 2003. His Honour observed that 'the plan had in fact been sent to Mr Taylor who had failed to inform Ms Young of its receipt'. His Honour considered that, while there had been a good deal of evidence about the fact that that marketing plan did not contain the required information, that was not the breach referred to in the Breach Notice. 224 The Breach Notice relevantly said as follows: '2. To date the marketing plan [that] must be submitted on or before 15 June each year in accordance with clause 8.2 of the Licence has not been received. Please note that the marketing plan must include all of the detailed information set out in clause 8.1.' [word added] The syntax of that part of the Breach notice seems to be somewhat awry. However, its meaning is clear enough. It draws attention to the fact that the marketing plan required by clause 8.2 to be submitted by 15 June 2003 has not been received. 225 The Breach Notice clearly enough refers to the requirement for the submission, on or before 15 June, of a marketing plan containing all the detailed information set out in clause 8.1. The document sent to Mr Taylor patently did not contain the information referred to in clause 8.1. While it was clear that the Breach Notice required the breach of clause 18.2 to be remedied by submission of a marketing plan containing that detailed information, it made no mention of the document dated 10 June 2003. 226 That is to say, the Breach Notice made no attempt to identify the deficiencies in the document of 10 June 2003. That is of some significance in circumstances where a marketing plan had been accepted without complaint in previous years in the same form as that contained in the document of 10 June 2003. In order to satisfy clause 18.2, the Breach Notice was required to specific the remedy. That would require an indication of the deficiencies in the document of 10 June 2003. 227 For example, Ms Young's email of 21 August 2003 drew attention to the deficiencies in the marketing plan of 10 June 2003. It may be that, had that material been included in the Breach Notice, there would have been sufficient to satisfy clause 18.2. However, that information was not contained in the Breach Notice. I do not consider that the Breach Notice satisfied the requirements of clause 18.2 in relation to the failure to provide a marketing plan. 228 In any event, Underworks made an attempt to remedy the breach of clause 8.2. Underworks' email of 28 August 2003 provided a significant proportion of the detail required by clauses 8.1 and 8.3. 229 The appellants say that the material attached to the email of 28 August 2003, while more detailed, also does not satisfy the requirement of Clauses 8.1 and 8.3 of the Sub-Licence. They say that it provides no detail in relation to labels and packaging or promotional expenditure and contains no detailed explanation of the proposed manner of representing the King Gee trademark in any promotional and advertising program. The material can be contrasted with the promotional material sent to Underworks by Ms Young on 25 August 2003. 230 The material provided with the email of 28 August 2003 does not, for the reasons indicated above, satisfy the requirements of clauses 8.1 and 8.3 for a marketing plan. In any event, none of the material provided by Underworks either with the document of 10 June 2003, or with the additional material of 28 August 2003, could conceivably constitute a marketing plan in relation to the Stubbies trademark. Any marketing plan proposed in relation to Stubbies Products could have been material to the question of whether Underworks had made any effort to exploit Products under the Stubbies trademark. Accordingly, there was a failure to remedy the second breach referred to in the Breach Notice. 231 It was common ground that a document purporting to be a marketing plan had been received once a year, even if there was occasional confusion as to the recipient and the date of receipt. The breach was in the deficiency of detail. On no fair reading of the documents to which Underworks referred as their marketing plan, did those documents contain the detail referred to Clause 8.1 of the Sub-Licence. The Breach Notice is clear in saying that the breach complained of was not merely that a marketing plan had not been received but that a marketing plan satisfying Clauses 8.1 and 8.2 had not been received. 232 Underworks failed to comply with the requirement of clause 8.2. However, the Breach Notice was deficient in failing to give notice of the remedy reasonably required by PB Sport & Leisure. The Breach Notice was not adequate to trigger the contractual right of termination by reason of failure to comply with clause 8.1 of the Sub-Licence. Further, I do not consider that the breach, or the failure to comply with the Termination Letter, is evidence of an intention not to be bound by the Sub-Licence that would give rise to a common law right to rescind for repudiation.

[57]

BREACH OF GOOD FAITH 235 The primary judge found that there was no breach of the Sub-Licence and that the right of contractual termination had not been triggered. However, his Honour concluded that a duty of good faith is an incident of every commercial contract, unless that duty is excluded either expressly or by necessary implication. His Honour considered that such a duty is not an independent term of such a contract, the breach of which would give rise to a remedy, but that it operates as a fetter upon the exercise of discretions and powers created by such a contract, including a power of termination. 236 The primary judge found that the alleged breaches of the Sub-Licence did not cause PB Sport & Leisure and PB Clothing any harm. His Honour considered that the reason why they moved to terminate the Sub-Licence was because Underworks refused to enter into a direct licence agreement with PB Sport & Leisure. His Honour found that Underworks was subjected to pressure to do so, and when that pressure failed to achieve its objective, PB Sport & Leisure decided 'to get rid of Underworks at the first available opportunity'. That conclusion, however, involves real tension. It is clear that PB Sport & Leisure and PB Clothing wanted Underworks to enter into a licence in relation to the Trade Marks. It is difficult to see why a termination of the existing Sub-Licence, when Underworks was not prepared to enter into a direct licence, could be characterised in any way as motivated by bad faith. 237 His Honour found that PB Sport & Leisure was willing to make life as difficult as possible for Underworks in an endeavour to lead it into a breach of the Sub-Licence and was then willing to act on any breach, however trivial. His Honour characterised the conduct of PB Sport & Leisure and PB Clothing as 'reprehensible', finding that it was 'motivated… by bad faith' and that 'it would be unjust and oppressive to Underworks', to permit termination in the circumstances that prevailed. 238 Implicit in that finding is that breaches of the Sub-Licence by Underworks were in some way induced by PB Sport & Leisure. However, such a proposition is not made out by the conclusions reached above. That is to say, the breaches relied on to terminate had nothing to do with PB Sport & Leisure or PB Clothing. They resulted from defaults by Underworks.

Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd

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Judgment (61 paragraphs)

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Legislation Cited (3)

Cases Cited (24)