_Parmalat Australia Ltd & Ors v Norco Co-operative Ltd_

Judgment (107 paragraphs)

[1]

CONTRACTS - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - OTHER MATTERS - where clause 15(b) of the Trade Mark Licence Agreement entitles the licensor to terminate the authority to use the relevant trade marks "if for any reason NDM ceases to conduct the Business Operation" - meaning of "NDM" - whether "NDM" in clause 15(b) is merely a reference to the trading name of the joint venture or is a reference to those entities "now trading as Norco Dairyfields Milk" and to them as joint venturers - meaning of "Business Operation" - whether the term "business operations" in clause 15(b) refers to the business carried on by the joint venture - where the "Business Operation" operated by the Participants, utilising the Assets, are the business activities conducted by the named Joint Venturers and their transferees as part of the Joint Venture, while those named Joint Venturers or their transferees hold an Interest in the Joint Venture - where an Interest in the Joint Venture includes the rights to use the relevant trade marks under the Trade Mark Licence Agreement

[2]

CONTRACTS - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - OTHER MATTERS - when a Joint Venturer participant becomes a Defaulting Participant Joint Venturer, whose interest can be purchased by other participants under clause 9 of the Joint Venture Agreement, the purchasing Joint Venturer is a "permitted assign" of the Defaulting Participant Joint Venturer - whether the Trade Mark Licence Agreement allowed for changes in the composition of the Joint Venture via permitted assignments - where the purchasing joint venturer acquires 100 per cent of the interest in the Joint Venture either by a pre-emptive purchase of the whole interest of the two joint venturers under clause 8 or by purchasing the whole of the defaulting participants interest under clause 9, so that only one Participant is left, does the NDM continue to conduct "Business Operations" or is clause 15(b) of the Trade Mark Licence Agreement engaged

[3]

CONTRACTS - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - OTHER MATTERS - where clause 15(a) of the Trade Mark Licence Agreement entitles the licensor to terminate the authority to use the relevant Trade Marks without notice to NDM "if the Joint Venture is terminated in accordance with the Joint Venture Agreement" - whether the Trade Mark Licence Agreement dated 30 November 1998 is determinable by the first and second appellants pursuant to clause 15(a) of that agreement by reason of the respondent exercising its option to acquire the interest of Pauls Trading Pty Ltd and Dairyfields in the joint venture described in the Joint Venture Agreement pursuant to clause 9 thereof

[4]

Australian Broadcasting Commission v Australasian Performing Right Association Limited [1973] HCA 36; (1973) 129 CLR 99, followed

[5]

Denham Bros Ltd v W Freestone Leasing Pty Ltd [2003] QCA 376; Appeal No 9855 of 2002, 2 September 2003, distinguished

[6]

Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd and Ors [1994] 1 AC 85, considered

[7]

Pauls Trading Pty Ltd & Dairyfields Pty Ltd v Norco Co-operative Ltd [2006] QCA 117; Appeal No 1314 of 2006, 20 April 2006, followed

[8]

Pauls Trading Pty Ltd & Anor v Norco Co-Operative Ltd [2006] QSC 015; SC No 9327 of 2005, 8 February 2006

[9]

Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660, considered

[10]

United Dominions Corporation Limited v Brian Proprietary Limited and Ors [1985] HCA 49; (1985) 157 CLR 1, cited

[11]

K N Wilson SC, with D P de Jersey, for the appellants

[12]

H B Fraser QC, with T P Sullivan, for the respondent

[13]

**[1] McMURDO P: Jerrard JA has set out the facts and issues in this appeal so that my own reasons can be briefly stated.

[14]

[2] I agree with Jerrard JA that if the respondent, Norco Co-Operative Limited ("Norco"), were to exercise its option rights under cl 9 of the Joint Venture Agreement of 27 June 1996 ("JVA") and acquire the interests of Pauls Trading Pty Ltd ("PT") and Dairyfields Pty Ltd ("DF") in the joint venture, then under cl 15(b) of the Trade Mark Licence Agreement dated 30 November 1998 ("TMLA"), the Pauls Licensors (the first appellant, Parmalat Australia Limited, formerly Pauls Limited ("Pauls") and the second appellant, Pauls Ice Cream & Milk Pty Ltd, formerly Pauls Ice Cream & Milk Limited ("PIM")) would have the right to terminate the authority given by the Pauls Licensors to the NDM under the TMLA to use the trade marks set out in items 1 and 2 of the schedule to the TMLA. I agree with Jerrard JA's reasons[1] for concluding that the reference to "the NDM" in the recitals to and in cl 15(b) TMLA describes Norco, DF and PT trading as Norco Dairyfields Milk and also the joint venture into which those entities joined in the JVA; "the NDM" is not merely a reference to the trading name of the joint venture; if one entity purchases the interests of the other entities as defaulting participants under cl 9 JVA so that that entity becomes the only remaining participant in the JVA, the joint venture is at an end and NDM ceases to conduct the "Business Operation" under cl 15(b) TMLA. It follows that the learned primary judge wrongly declared that the TMLA was not determinable by the appellants under cl 15(b) by reason only of Norco exercising its option to acquire the interests of PT and DF in the joint venture under cl 9 JVA.

[15]

[3] That conclusion means that it is unnecessary to determine the meaning of "permitted assigns" in cl 1.2(f) TMLA.

[16]

[4] I agree with the orders proposed by Jerrard JA in the appeal.

[17]

[5] I turn now to the cross-appeal. In Pauls Trading Pty Ltd & Anor v Norco Co-Operative Ltd[2] this Court affirmed the correctness of the learned primary judge's declaration that PT and DF became defaulting participants on or about 22 October 2005 under cl 9.1(a)(15) JVA. This has the effect that Norco could terminate the JVA under cl 10 JVA or it could exercise its option to purchase the interests of the defaulting participants, PT and DF, in the joint venture under cl 9 JVA. I agree with Williams JA that if Norco takes the latter course then this will have the effect of terminating the joint venture "in accordance with the Joint Venture Agreement" under cl 15(a) TMLA. It follows that Pauls and PIM would then have the right to terminate under cl 15(a) TMLA their authority to the NDM under the TMLA to use the relevant trade marks.

[18]

[6] I agree with the orders proposed by Williams JA on the cross-appeal.

[19]

[7] WILLIAMS JA: The background circumstances giving rise to this appeal are fully set out in the reasons for judgment of Jerrard JA; I will not repeat them.

[20]

[8] This appeal is concerned with provisions of the Trade Mark Licence Agreement ("TMLA") executed on 30 November 1998; the primary concern is with the proper construction of cl 15 thereof.

[21]

[9] In my view it is of critical importance when construing the various terms of the TMLA to remember that it is concerned with trade marks having significant value. Those trade marks are currently owned by the appellants or associated companies. One of the trade marks, Pauls, is a name directly associated with one appellant, Pauls Ice Cream & Milk Pty Ltd, and therefore it is understandable that the goodwill in the name is of particular concern to the appellants.

[22]

[10] For the reasons developed by Jerrard JA, I agree that the TMLA granted a licence to use the trade marks in question to the joint venture constituted by the agreement of 27 June 1996 and trading under the name Norco Dairyfields Milk ("NDM"). The "Business Operation" referred to in cl 15(b) of the TMLA was the business carried on by the joint venture. That to my mind is made clear by a reading of the TMLA as a whole.

[23]

[11] It follows that once NDM no longer carries on that business operation because the joint venture has come to an end, cl 15(b) is satisfied. That conclusion is sufficient to dispose of the appeal.

[24]

[12] Clause 1.2(f) of the TMLA provides that "references to a party include references to its respective successors and permitted assigns". At first instance it was implicitly held that the respondent, on exercising the default option pursuant to cl 9 of the Joint Venture Agreement, became the successor and assignee entitled to the trade marks. That could only be so because there was an assignment effected thereby.

[25]

[13] Counsel for the appellants argued that the word "permitted" was critical to the assignment of a benefit under the TMLA and that in the circumstances there could be no assignment of the rights to use the trade marks without the "permission" of the appellants.

[26]

[14] Parties to a contract may, by the contract, make express provision for the assignment of benefits under it. After an extensive review of authorities the House of Lords (the principal judgment being delivered by Lord Browne-Wilkinson) in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd & Ors [1994] 1 AC 85 held that a contract could prohibit assignment of the benefit of the contract without consent, and that where a party to such a contract had a genuine commercial interest in ensuring that the contractual relations with the party selected were preserved, there was no reason for holding such a prohibition to be contrary to public policy. That approach has been adopted by the High Court in cases such as Bruce v Tyley and Anor [1916] HCA 34; (1916) 21 CLR 277. There Barton J at 284 cited with approval the observation of Lord Macnaghten in Tolhurst v Associated Portland Cement Manufacturers (1900) Limited [1903] AC 414 at 417: "There are contracts, of course, which are not to be performed vicariously, to use an expression of Knight Bruce LJ. There may be an element of personal skill or an element of personal confidence to which, for the purposes of the contract, a stranger cannot make any pretensions."

[27]

[15] Here, the subject matter of the contract was valuable trade marks, including trade marks associated with the name of one of the contracting parties. In those circumstances, the appellants clearly had a commercial interest (akin to a personal confidence) in ensuring that the trade marks were only used by a company they approved of. Because of that there is no reason for concluding that a provision prohibiting or limiting assignment was contrary to public policy. The case to my mind comes within the statement of Collins MR in Tolhurst v Associated Portland Cement Manufacturers (1902) 2 KB 660 at 668:**

[28]

"The special right of ignoring altogether the consent of the person upon whom the obligation lies to the substitution of one person for another as the recipient of the benefit would seem in principle and in common justice to be confined to those cases where it can make no difference to the person on whom the obligation lies to which of two persons he is to discharge it..."

[29]

**[16] Here, the TMLA provided for "permitted" assignments. The word "permitted" must have some significance. That significance must be to limit assignments to entities approved of by the appellants.

[30]

[17] It is true that in some of the cases it is said that an assignment without consent is valid as between the assignor and assignee even where made in breach of a contractual provision limiting assignment. In those cases the only remedy is damages for breach. But the cases distinguish between those involving protection of personal skill or confidence and those where the identity of the person to whom the benefit passes makes no difference. In the former situation the clause prohibiting or limiting assignment prevails and there can be no valid assignment in breach of the contractual provision; in the latter case the assignment is valid but the assignor would be liable for damages for breach of contract.

[31]

[18] This case is clearly distinguishable from the situation considered by this Court in Denham Bros Ltd v W Freestone Leasing Pty Ltd [2003] QCA 376. In that case the definition of "Lessor" included its successors and assigns. The assignment in question involved the assignment of rights under a contract, which included the right of the lessor to require the lessee to purchase the property on the occurrence of certain events. It was argued for the lessee that the benefit of the option was not capable of assignment because it was personal; it was said that the identity of the lessor made a significant difference to the obligation imposed on the lessee. The Court, principally in the judgment of Holmes J, applied the statement of Collins MR quoted above and concluded that as the parties were concerned with commercial property no element of personal skill or personal character was involved. In consequence the assignment was held to be effective. It should be noted that in that case the definition of "Lessee" was different; it referred to successors and permitted assigns. But the Court did not have to consider the significance of the word "permitted", as it was not directly concerned with any assignment by the lessee.

[32]

[19] It follows that I would also hold that the judge at first instance erred in implicitly holding that the respondent was an assignee of the interests of Pauls Trading Pty Ltd and Dairyfields Pty Ltd pursuant to the TMLA upon exercising the default option pursuant to cl 9 of the Joint Venture Agreement.

[33]

[20] I turn now to the cross-appeal. This involves the issue whether the appellants have a right to terminate the authority to use the trade marks because the requirements of cl 15(a) have been met. The question is whether or not the joint venture has been "terminated in accordance with the Joint Venture Agreement".

[34]

[21] It is true that cl 10 of the Joint Venture Agreement is headed "Termination". That clause provides for a meeting of participants to be held to consider whether or not to terminate the Agreement in specified circumstances (cl 10.2), and then cl 10.3 provides for "Immediate Termination" upon the occurrence of certain events. It may well be that either of those clauses could be invoked in the circumstances to terminate the Joint Venture Agreement, but importantly that has not been done.

[35]

[22] But significantly there are other provisions in that Agreement which refer to its termination. It has been held in the related proceeding that the appellants are defaulting participants and in consequence the respondent has the right to exercise the default option conferred by cl 9 of the Joint Venture Agreement. Paragraph (8) of cl 9.3(g) thereof provides that a defaulting participant must do all that is necessary to give effect to the transfer or assignment of the defaulting participant's rights under the Joint Venture Agreement to the party exercising the default option. The clause goes on to say that amongst other things a defaulting participant must take all such action as is necessary "to give effect to the termination of this Agreement if the case so requires." What does that mean? Those words can be given meaning, in my opinion, only if it is accepted that upon the party exercising the default option obtaining all of the Joint Venture Assets and the sole right to operate the business there will be a termination of the Joint Venture Agreement. There can no longer be a joint venture as there is only one "participant": cf United Dominions Corporation Limited v Brian Proprietary Limited and Ors [1985] HCA 49; (1985) 157 CLR 1 at 10.

[36]

[23] If that is right then in those circumstances it can be said that the joint venture has been terminated in accordance with the Joint Venture Agreement. That to my mind is the case here.

[37]

[24] Subject to the matters I have expressly dealt with, I agree with the reasoning of Jerrard JA.

[38]

[25] In consequence I would declare on the cross-appeal that the Trade Mark Licence Agreement dated 30 November 1998 is determinable by the first and second appellants pursuant to cl 15(a) of that agreement by reason of the respondent exercising an option to acquire the interest of Pauls Trading Pty Ltd and Dairyfields Pty Ltd in the joint venture described in the Joint Venture Agreement dated 27 June 1996, pursuant to cl 9 thereof, and thereby terminating the Joint Venture Agreement.

[39]

[26] Because the appellants conceded at first instance that clause 15(a) was limited to termination pursuant to cl 10 of the Joint Venture Agreement I would make no order as to costs on the cross-appeal.

[40]

[27] It follows that on the appeal I agree with the orders proposed by Jerrard JA, and on the cross-appeal I would make the declaration set out above and order that there be no costs on the cross-appeal.

[41]

[28] JERRARD JA: The proceedings giving rise to this appeal, namely a hearing on 2 March 2006 and a judgment on 8 March 2006, result from the decision given on 8 February 2006 in the proceedings considered in the appeal in Pauls Trading Pty Ltd & Dairyfields Pty Ltd v Norco Co-operative Ltd [2006] QCA 117.[3] This Court upheld the judgment at first instance therein, which declared that on the correct construction of clause 9.1(a)(15) of the Joint Venture Agreement ("the JVA") dated 27 June 1996, each of Pauls Trading Pty Ltd ("PT") and Dairyfields Pty Ltd ("DF") became a Defaulting Participant on or about 22 October 2005. The result of that declaration was that Norco Co-operative Ltd ("Norco") was entitled to exercise an option granted by clause 9.2 of the JVA to purchase the interest of each of PT and DF in the, put simply, joint venture.

[42]

[29] The issue in these proceedings is whether, if Norco exercises that option, it will thereby acquire the right to an indefinite use of the trade marks Physical, PhysiCAL Skim, Breaka, Ice Break, and Rush, for all of which Parmalat Australia Limited (formerly Pauls Limited) ("Pauls") is the registered proprietor under the Trade Marks Act 1995 (Cth) and the exclusive owner; and likewise the trade marks Pauls, Trim, and Slim, for all of which Pauls Ice Cream & Milk Pty Ltd (formerly Pauls Ice Cream and & Milk Limited) ("PIM") is the registered proprietor and exclusive owner. It is common ground that the right to use those trade marks has a significant value.

[43]

[30] This judgment should be read with the judgment in Pauls Trading Pty Ltd & Dairyfields Pty Ltd v Norco Co-operative Ltd and the judgment of Williams JA therein, where His Honour sets out matters of background relevant to both appeals. This appeal requires further description of the agreements the JVA parties entered into, and of the Trade Mark Licence Agreement ("the TMLA") that Pauls and PIM entered into with Norco, PT and DF - the joint venturers under the JVA - on 30 November 1998. The appeal turns on the proper construction of clause 15 of the TMLA.

[44]

[31] The parties to the JVA were originally Norco Co-operative Limited, which has retained that name, Dairyfields Co-operative Association Limited, which changed from a co-operative to a company and therefore changed its name (to DF) when PT acquired all of the shares in DF in 1998; and QUF Trading Pty Ltd ("QUF"), which later changed its name to PT. Since 1 July 1996 all of the shares in PT have been held by Pauls.[4] PT acquired the shares in DF in 1998, at the time when the Parmalat group acquired the Pauls group.

[45]

[32] When the JVA was entered into Norco operated a business principally involving the processing, packaging and marketing of milk in parts of Queensland and New South Wales. At that time PT and DF also carried on a business which principally involved processing, packaging and marketing of milk in parts of Queensland and New South Wales. PT and DF conducted that business under lease from a company named Gold Coast Milk Pty Ltd ("GCM"), which PT and DF owned. By the JVA, PT and DF agreed to associate themselves in an unincorporated joint venture with Norco to jointly operate and expand each of their existing businesses.[5]

[46]

[33] When Parmalat acquired all the shares in Pauls in 1998, and PT, its subsidiary, acquired all the shares in DF, a number of further agreements were entered into. Their effect was that the joint venture continued, but now there were really only two parties to it, they being Norco with a 50 per cent interest and PT (and DF), which between them held in toto a 50 per cent interest. Before that, Norco had had a 45 per cent equity in the joint venture, PT 22 per cent, and DF 33 per cent. Between 27 June 1996 and the subsequent agreements in August 1998, the joint venture sold milk in New South Wales under the "Norco" brands, and in South East Queensland under the "Dairyfields" brands. When the Italian dairy group Parmalat Finanziaria SpA acquired Pauls, and Pauls acquired DF and converted it from a co-operative to a public company, Norco negotiated an increase of five per cent in its equity in the joint venture.

[47]

[34] The agreements entered into in 1998, reflecting the proposed changes in the control of PT and DF, and the market share held by Norco, included an agreement dated 7 August 1998 between PT and Norco (the "Norco Pauls agreement"), which recited that PT or an entity related to it intended to offer to purchase all of the shares in DF or all of the assets in DF, and that it was also likely that the effective control (as defined in clause 9.1(a)(15) of the JVA) of Pauls would shortly alter. That agreement provided that in the event that PT successfully acquired all the shares and/or assets of DF, Pauls would pay Norco $5 million. Further, on that eventuality it was agreed that the joint venture documents would record a 50 per cent participants' interest for each of Norco and PT, and further agreed that the joint venture agreement would be amended (if PT acquired the assets or shares in DF) by providing that a joint venture participant who purchased the interest of a Defaulting Participant would pay either the higher of $40 million or, in effect, the assessed fair value.

[48]

[35] Clause 7.1 of the Norco Pauls agreement provided that Pauls would enter into a Brand User Agreement with the parties to the JVA (my italics) in terms similar to those outlined in Attachment 2, but with the exception that the term of the licence would be for an indefinite rather than a fixed term. Attachment 2 contemplated that Pauls would license the brand names described in paragraph 29 herein to Norco Dairyfields Milk, that being described in the interpretation clause of the Norco Pauls agreement as the name by which the joint venture was conducted pursuant to the JVA between Norco, DF, and PT.[6] Attachment 2 proposed that Pauls would license Norco Dairyfields Milk to use those Pauls brands in defined areas in Queensland and New South Wales, which right, subject to some irrelevant exceptions, would be exclusive. That licence would last 30 years but would be subject to termination:**

[49]

(a) By mutual agreement of all the parties to the Joint Venture on the terms agreed.

[50]

(i) if the Joint Venture is terminated, or it ceases to carry on business; or

[51]

(ii) if Norco Dairyfields milk commits a material breach of the Pauls' Brand Licence Agreement."

[52]

**[36] The Norco Pauls Agreement, by clause 7.1 and Attachment 2, expressly contemplated that Pauls would license the parties to the joint venture, as joint venturers. PT, Norco, and DF executed an agreement on 7 August 1998 ("the NDM agreement") which also described in the recitals the intention of PT (or an entity related to PT) to offer to purchase either the shares or assets of DF, and the probability that effective control of PT would shortly alter. Clause 3 of the NDM agreement had the effect, that if PT did acquire the shares or assets of DF, and if effective control of PT changed to (control by Parmalat Australia Pty Ltd, the holding company of Pauls) PT and DF would each be deemed not to be defaulting participants as a consequence of the change in Effective Control of each of them.

[53]

[37] Relevantly for this judgment, that agreement - like the Norco Pauls agreement - made specific reference to the "Joint Venture", defining that to mean the joint venture known as Norco Dairyfields Milk conducted pursuant to the Joint Venture Agreement, that being defined as the Joint Venture Agreement dated 27 June 1996 between Norco, DF and PT. Thus the background circumstances, known to the parties, in which the TMLA was executed included prior agreement that a Joint Venture known as Norco Dairyfields Milk conducted pursuant to an agreement between Norco, DF and PT, would continue, but with a re-arrangement of the interests held by Norco and PT (and DF), and Pauls and PIM would license that joint venture. This Court must construe cl. 15 of the TMLA in the context of those circumstances, and ascertain what meaning the TMLA and cl. 15 therein would convey to a reasonable person having that background knowledge.[7]

[54]

[38] The TMLA dated 30 November 1998 was expressed to be between Pauls and PIM on the one hand and Norco, DF, and PT, currently trading as "Norco Dairyfields Milk" (the "NDM"), on the other. The recitals included that Pauls and PIM were the registered proprietors and exclusive owners of the relevant trade marks, and that NDM desired to use them "....in connection with the Business Operations", and that "NDM also desires to use the Pauls Name as part of the Joint Venture Name." The recitals then provide that Pauls and PIM authorise NDM to use the trade marks and the Pauls name on the terms and conditions of that agreement.

[55]

[39] The term "Joint Venture" was defined slightly differently in the TMLA from the definition in the Norco Pauls Agreement and the NDM Agreement, in that in the TMLA it was defined to mean JV established pursuant to the Joint Venture Agreement "as it may be amended from time to time"; but the definition of "Joint Venture Agreement" was relevantly the same in all three documents. The difference in the definition of "Joint Venture" reflects, I consider, simply the knowledge that the Joint Venture Agreement would soon be amended or varied as earlier foreshadowed and agreed on 7 August 1998. What matters is that the TMLA described Norco, PT, and DF as currently trading as the NDM, consistent with the descriptions in each of the Norco Pauls agreement and NDM agreement, and the TMLA specified that references to the Joint Venture were to the one established pursuant to the June 1996 agreement. It follows that the reference in the TMLA to the NDM, not specifically defined other than in the description of the parties to the TMLA, is a reference to the Joint Venture established between Norco, PT and DF.

[56]

[40] The learned trial judge reached the contrary conclusion when construing clause 15 of the TMLA, which relevantly provides as follows:**

[57]

The Pauls Licensors will have the right to terminate the authority to use any of the Trade Marks without notice to NDM:

[58]

(a) if the Joint Venture is terminated in accordance with the Joint Venture Agreement;

[59]

(b) if for any reason NDM ceases to conduct the Business Operation;"

[60]

**The Pauls licensors were defined in the TMLA to mean Pauls and PIM; the construction of NDM in that clause reached by the learned judge depended in turn on the judge's construction of the expression "Business Operation".

[61]

[41] A fourth document was executed on 21 December 1998 by PT, Norco, and DF, varying the JVA. Those variations reflected the ones foreshadowed in August 1998, and provided that if either of PT or DF were Defaulting Participants, the other of them should be also deemed to be a Defaulting Participant, and relevantly inserted the definition in the JVA of "Pauls Trade Mark Licence Agreement". It was defined to mean the TMLA dated on or about 1 December 1998 "which provides for the licence of the right to use the trade marks for the purposes of the Business Operations".

[62]

[42] The learned trial judge expressed the relevant principles for construing commercial agreements in terms with which senior counsel for both parties agreed, namely that:**

[63]

"[11] The resolution of the parties' disputes is to be essayed by construing the terms of the written agreements by which they have regulated their relationships. The principles which I understand should be applied in construing the written agreements are these:

[64]

The court must first look at the words of the document which constitutes the contract between the parties. The whole of the document must be considered and a construction should be attempted which will make all clauses operate harmoniously. If the words are plain and unambiguous the court must give effect to them even though the result may appear one sided or even unreasonable. See Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109.
If the language of the contract is ambiguous, or open to two constructions, or if the plain meaning of the clause renders it inconsistent with another, the court should resolve the ambiguity, or reconcile the inconsistency, by adopting a construction which accords with 'business common sense' or the commercial purpose of the agreement which appears from its terms and the knowledge, common to the parties, which formed the background to the formation of their agreement. See Australian Broadcasting Commission; Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-4 per Kirby P.
If the words of a contract, while plain and unambiguous, lead to a result which is not only unreasonable but absurd, the court should construe the contract, if necessary by supplying, omitting, or correcting words to avoid the absurdity: Watson v Phipps (1985) 60 ALJR 1 at 3; Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25 paras [19] and [20]. Before this rule is put into operation it must, I think, be unmistakably clear that the parties cannot have meant what they said was their bargain."

[65]

[43] I add to that the passage from Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd[8] that:

[66]

"If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust."

[67]

[44] The learned judge came to the conclusion that if Norco exercised its option rights under clause 9 of the JVA and acquired PT's and DF's interest in the Joint Venture, then while the Joint Venture would have thereby come to an end and there would no longer be the NDM joint venture, nevertheless the expression "NDM" in clause 15(b) included Norco continuing to conduct the Business Operations alone, after acquiring the interest of the two other participants. The learned judge noted that clause 15(b) of the TMLA does not insist that the Business Operations be conducted by a Joint Venture, only that "NDM" continue to conduct it. The judge observed that by clause 1.2(f) of the TMLA, unless the context indicated otherwise, references to a party included references to its respective successors and permitted assigns, and that by clause 22 of the TMLA it was provided that that agreement bound the successors of each party and the successors in title to the trade marks. The learned judge accepted Norco's contention that "NDM" did not necessarily mean a Joint Venture between Norco, PT and DF, but extended to one of them (in fact Norco), who became the successor to, or assignee of, the others. The judge held that if two joint venturers should assign their interest in the joint venture and its assets to a third, that third would be NDM, it (now) being not Norco, PT, and DF, but Norco and its successors and permitted assign. While there would not be a Joint Venture, Norco would satisfy the contractual definition of NDM, and so long as it continued to operate the Business Operation, clause 15(b) would not come into operation.

[68]

[45] The learned judge considered that to be the ordinarily literal meaning of that clause, and that the now appellants' construction departed from that literal meaning by limiting NDM to its composition as it was when the TMLA was first made. The judge considered that that construction ignored or enervated the clauses which allowed for changes in the composition of the Joint Venture.

[69]

[46] The respondent supports those rulings by drawing attention to the difference between, on the one hand, clause 15(a) and (b) of the TMLA, and on the other the drafting of the document Attachment 2 to the Norco Pauls agreement. The latter described a right by Pauls to terminate if the Joint Venture was terminated or ceased to carry on business, whereas the former referred only to NDM ceasing to conduct the Business Operation. The respondent also relies on the provisions of clause 1.2(f) and 22, on which the learned judge relied.

[70]

[47] For their part, the appellants, as one part of their argument, contended that the reference to "permitted assigns" in the TMLA meant assignees permitted by Pauls and PIM as licensors; and argued that that construction was assisted by the fact that the TMLA did not contain any provision entitling the licensors to terminate the licence agreement if any of the licensees assigned their interests under the licence without the licensors' agreement. But that latter argument has the same effect as requiring that a term be implied (permitting termination if there was an assignment without permission) which is not there, and depends on the proposition that prima facie there would be no right to assign without the licensors' permission. That proposition is contradicted by the decision of this Court in Denham Bros Ltd v W Freestone Leasing Pty Ltd [2003] QCA 376, in which Holmes J cited with approval the following statement in CB Peacocke Land Co Ltd & Anor v Hamilton Milk Producers Co Ltd[9] to this effect:**

[71]

"We do not need to decide that there may not be particular contracts where the obligations are so personal in character that, notwithstanding the use of the word 'assigns' in the definition of the parties, the Court would say that, nevertheless, it was not intended that a party was bound to accept performance by an assignee of the other. But such cases must, if they exist at all, be rare,..."

[72]

**I consider the TMLA should be construed as the respondent argues, and as the learned judge held, namely as providing for assignment.

[73]

[48] Then there was an issue as to the meaning "permitted assigns". The term is not defined in the TMLA, which in clause 1.1 provides that in that agreement, including the recitals to it, unless the context otherwise indicated, the terms defined in the JVA would have the same meaning in the TMLA. There is no definition in the JVA of "permitted assigns", although there is a definition of "Permitted Assignees", defined to mean either the wholly owned subsidiary of a participant in the Joint Venture or a participant's parent company, where the participant is a wholly owned subsidiary of a parent company.

[74]

[49] The JVA provided three means by which a participant's interest could be assigned. One was pursuant to clause 7 of the JVA, allowing for assignment to a Permitted Assignee. Clause 8 permitted a participant to assign its interest (in whole or in part) in the Joint Venture assets to a third party, subject to a right of pre-emption in the remaining participants to purchase the interest the subject of the offer. It must be that when a pre-emptive right is not exercised and there is an assignment to a third party of an interest, that third party is a permitted assign.

[75]

[50] The third variety of assignment occurs under clause 9 of the JVA, when one participant becomes a Defaulting Participant, whose interest can be purchased by the other participants. I agree with the learned trial judge that in those circumstances that purchasing Joint Venturer would be a permitted assign of the Defaulting Participant Joint Venturer. But I respectfully disagree with the learned judge that that conclusion means that if Norco acquires 100 per cent of the interest in the Joint Venture, the NDM will continue to conduct the Business Operation. That is because I consider the reference to NDM in the TMLA is to the Joint Venture conducted by Pauls and Norco pursuant to the JVA, as amended. That follows both from the nature of the references to the Norco Dairyfields Milk Joint Venture in the documents executed by the Joint Venturers and the parties to this appeal in August 1998, and therefore the context in which the TMLA was made, and also from the definition of Business Operations in the JVA and linked definitions in it.

[76]

[51] "Business Operations" is defined in the JVA to mean:**

[77]

"[t]he business to be operated by the Participants utilising the Assets which business entails:-

[78]

(a) the purchase of raw milk from Dairyfields and Norco and the processing, packaging, marketing and sale of [that milk]; [and omitting less relevant clauses]

[79]

(e) any other activities the Board of Directors decides to include as part of this Joint Venture".

[80]

**The respondent acknowledged that the definition in (e) treated the Business Operations as something the Directors (of the joint venture - Norco and PT were entitled to equal numbers of those) decided upon as part of the Joint Venture, but argued that Norco could continue by itself the existing Business Operation of the previous joint venture, but without the possibility of increasing the activities conducted as part of the business operations. That concession really acknowledges that the definition of Business Operation is of business activities operated as part of "this Joint Venture". When the joint venture ended, so would the business activities it operated and therefore the Business Operations as defined. That construction of "Business Operations" is largely supported by the other definitions in the JVA, and therefore the TMLA.

[81]

[52] "Participant" is defined in the JVA to mean any of the following "while it holds an Interest:**

[82]

That definition assists Norco in its argument that it is a transferee from both DF and PT, but "Interest" is relevantly defined to mean, in relation to a Participant:

[83]

"(a) that Participant's undivided right, title and interest in the Joint Venture Assets;"

[84]

There are other parts to the definition of "Interest", not important for these reasons; "Joint Venture Assets" is defined to mean, in turn:

[85]

"(a) the interests from time to time held by the Participants (other than as Asset Owners) in the Assets as evidenced by the Transaction Documents and the Option Deed;

[86]

(b) in the event the option under the Option Deed is exercised and the contracts pursuant to the Option Deed are completed, the Venture Assets; and

[87]

(c) any interest acquired by the Participants for the purposes of the Business Operations in other assets after the Commencement Date including, without limitation, such assets as cash, raw material, stock in trade, debtors, choses in action and rights and entitlements under any contracts entered into by the Participants as part of the Joint Venture;" (my italics).

[88]

**[53] The learned trial judge held that the TMLA fell within the definition of a Transaction Document, but it was common ground on the appeal that that was an error, although unimportant in the judge's reasoning. Putting that small mistake aside, "Assets" is defined to mean the assets or parts thereof from time to time forming the subject of each of the Transaction Documents and such other assets whether or not owned by the Participants but used in the conduct of the Business Operations. The result of tracking through those definitions is that the Business Operation operated by the Participants, utilising the Assets, are the business activities conducted by the named Joint Venturers and their transferees as part of the Joint Venture, while those named Joint Venturers or their transferees hold an Interest in the Joint Venture Assets, which, relevantly to the TMLA, included rights and entitlements under contracts entered into by the Participants as part of the Joint Venture. The TMLA was one of those contracts.

[89]

[54] I consider it follows that the reference to "the NDM" in the recitals to the TMLA is both expressly to the entities "now trading as Norco Dairyfields Milk", and to them as the Joint Venturers, and as a description of the Joint Venture in which those entities were then engaged. It was not simply a reference to the trading name of the Joint Venture. Likewise in clause 15(b) the reference to NDM is to those entities and their Joint Venture, and the clause is engaged if those Joint Venturers or their transferees cease to carry on the Joint Venture and therefore its Business Operation. The respondent's arguments accepted that part of the definition of Business Operations could not apply to just one Joint Venturer carrying on after acquiring the interests of the other Joint Venturers.

[90]

[55] I consider it follows that where there is a pre-emptive purchase of the whole interest of one of the two joint venturers under clause 8, or the purchase of the whole of the defaulting participants interest under clause 9, then if only one Participant is left, who is no longer in a joint venture with another participant, clause 15(b) is engaged.

[91]

[56] I add that there could be more than one permitted assign in the situation when the Joint Venture was originally entered into; and after December 1998 either PT or DF could have assigned its interests to two or more assignees, or Norco could have assigned its interest to one, two, or more assignees, presuming there was no pre-emptive purchase by the other participants, and accepting that the assignees thereby became permitted assigns. In that circumstance clause 15(b) would not be engaged; there would still be a Joint Venture between different Participants. If PT was the vendor of its interest to a permitted assign, without pre-emption, then 15(b) would not be engaged, even though PT - and through it the Parmalat interests - would no longer be a Joint Venturer, and the assignee would be. Presumably the price charged by PT would reflect the value of the continuing indefinite licence to use the trade mark. That does not result in the Parmalat Joint Venture interest being worth a great deal more than Norco's 50 per cent Joint Venture interest; if Norco sold to a third party, a permitted assign, the licence would continue.

[92]

[57] What was licensed was a Joint Venture of (Pauls) and Norco, trading as NDM, and not Norco (or its assignee) in any other capacity than as a Joint Venturer with (Pauls) or a (Pauls) assignee, with whom Norco was in a continuing Joint Venture. Accordingly, I would allow the appeal, set aside the first declaration made by the learned judge on 10 March 2006,[10] and declare instead the Trade Mark Licence Agreement dated 30 November 1998 is determinable by the first and second appellants pursuant to clause 15(b) of that agreement by reason of the respondent exercising an option to acquire the interest of Pauls Trading Pty Ltd and Dairyfields Pty Ltd in the joint venture described in the Joint Venture Agreement dated 27 June 1996, pursuant to clause 9.2 and clause 9.3 of the said agreement.

[93]

[59] This Court agreed to hear Norco's cross-appeal from the failure of the learned primary judge to make a declaration that included reference to clause (15)(a) of the TMLA. The declaration made referred only to clause 15(b).

[94]

[60] Clause 15(a) has already been quoted herein, and it was common ground on this appeal that in the argument before the learned primary judge the appellants' senior counsel did not rely on clause 15(a), but accepted instead that the reference in it to "in accordance with the Joint Venture Agreement" really meant "in accordance with Clause 10 of the JVA". The respondent had made the like written submission to the learned judge. Notwithstanding that concession and argument, the appellants sought, after publication of the judgment on 8 March 2006, to agitate the application of clause 15(a) in yet further proceedings in the trial division. All parties accepted that it was in order for this Court to rule on the respondent's cross-appeal, which sought to uphold the construction for which the respondent argued before the learned judge, and with which the appellants appeared to agree.

[95]

[61] The concession by the appellants' senior counsel was correct. The Joint Venture Agreement in clause 10 specifically provides for termination of the Joint Venture if there are defaulting participants who represent 50 per cent or more of the aggregate participants' interests, and if the voting Directors representing a non-defaulting participant so resolve. In the event of a termination pursuant to clause 10, all Joint Venture Assets will be sold.

[96]

[62] I respectfully consider that the unambiguous meaning of the reference in clause 15(a) to the termination of the Joint Venture "in accordance with the Joint Venture Agreement" is to clause 10, and that the respondent's cross-appeal should be allowed, with costs assessed on the standard basis.

[97]

• that the appeal in Appeal Number 2070 of 2006 be allowed, that the costs order and first declaration made by the learned judge on 10 March 2006 be set aside, and it be declared instead the Trade Mark Licence Agreement dated 30 November 1998 is determinable by the first and second appellants pursuant to clause 15(b) of that agreement by reason of the respondent exercising an option to acquire the interest of Pauls Trading Pty Ltd and Dairyfields Pty Ltd in the joint venture described in the Joint Venture Agreement dated 27 June 1996, pursuant to clause 9.2 and clause 9.3 of the said agreement;

[98]

• the respondent is to pay the appellants' costs of this appeal and of the originating application to be assessed on the standard basis;

[99]

• the respondent's cross-appeal is allowed, with costs assessed on the standard basis.**

[100]

[2] Appeal No 1314 of 2006, [2006] QCA 128, 21 April 2006.

[101]

[3] Appeal No 1314 of 2006, [2006] QCA 128, 21 April 2006.

[102]

[4] I describe that company as "Pauls" rather than "Parmalat" because "Pauls" is the name used in the TMLA.

[103]

[5] This description is taken from the judgment of the learned trial judge in Pauls Trading Pty Ltd & Anor v Norco Co-operative Ltd [2006] QSC 015 at [1]- [2].

[104]

[6] That interpretation clause (1.1) provides that the term "Pauls" when used in the Norco Pauls agreement includes, where the context admits, any related body corporate of Pauls. "Pauls" was the term used in that agreement to refer to PT. In clause 7.1 the reference to "Pauls" would be to Pauls Limited, as it was then called. That was the entity owning the Pauls trade mark.

[105]

[7] Maggbury Pty Ltd & Anor v Hafele Australia Pty Ltd and Anor [2001] HCA 70; (2002) 185 ALR 152 at 155; Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1981-1982) 149 CLR 337 at 350-352 per Mason J.

[106]

[8] [1973] HCA 36; (1973) 129 CLR 99 at 109, cited by Keane J in Highmist P/L v Tricare Ltd [2005] QCA 357 at [40].

[107]

[9] [1963] NZLR 576 at 582.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (107 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (6)