Apple and Pear Australia Ltd v Pink Lady America LLC [2016] VSCA 280

Apple & Pear Australia Ltd (APAL) is a non-profit body representing Australian apple and pear growers. APAL is the registered proprietor of the PINK LADY mark (for particular varieties of apples) in most parts of the world, but not in the US and Mexico (where the mark is registered to an unrelated company) or Chile. Pink Lady America LLC (PLA) is the exclusive licensee of the PINK LADY mark in the US and Mexico. Both APAL and PLA are members of the International Pink Lady Alliance (IPLA), a body that provides a forum in which stakeholders in the various territory-specific PINK LADY marks can discuss and agree upon brand management issues.

Chile is the largest exporter of PINK LADY branded apples in the southern hemisphere. An issue arose between APAL and PLA as to which of them held the right to the ownership and control of PINK LADY marks in Chile. That issue arose because, in 2006 and 2007, PLA applied to register the marks in Chile (after APAL unsuccessfully had applied for them), following an agreement between the parties that APAL would not oppose PLA’s applications provided PLA agreed to assign the registrations to APAL upon grant, in exchange for which PLA was to retain exclusive rights to exploit the marks so far as exports to North American territories were concerned.

That agreement was embodied in an Option Deed dated July 2007. Under the Option Deed, APAL was granted an option by PLA to have PLA assign to APAL certain trade marks and applications, the exercise of which was to be effected by APAL serving on PLA a signed “Option Notice” (Option). The Option was to be exercised within a period defined by reference to the first registration of the three marks the subject of the Option, or as agreed by the parties (Option Period). Clause 5.1 provided that “in the event that APAL exercises its Option rights”, PLA would be granted an exclusive, perpetual, royalty free licence (Licence) “to use” the marks with respect to all trade between Chile and North America (i.e. Canada, the US and Mexico) in “Cripps Pink” apple products (Products). By March 2008, a Deed of Variation also had been drawn up that was designed to extend the definition of Products to include Rosy Glow apples and any other “Essentially Derived Varieties” (Draft Deed of Variation), but that document was never executed.

In April and May 2008, PLA assigned to APAL the Chilean trade mark applications and one trade mark that had become registered, but before all the circumstances that would trigger the Option had taken place. At trial, the learned trial judge (Croft J) held that that the parties thereafter conducted themselves as though the Option had been exercised and Licence granted, and as though the Draft Deed of Variation was in effect. By 2011, however, the relationship between the parties had soured, and APAL took the position that the Licence had not been granted, and that PLA did not have any rights in respect of the “Rosy Glow” variety or a “refreshed” version of the PINK LADY logo that had replaced the logo set out in the Option Deed soon after it was executed.

Litigation was commenced to determine the scope and status of the Option Deed, the Licence and the Draft Deed of Variation. The trial judge held, among other things, that: (a) the Option had been exercised, the Licence had been granted and the Draft Deed of Variation took effect; (b) it was an implied term that the Licence would extend to any rebranding or “refreshing” of the marks the subject of the Licence; and (c) APAL’s conduct in purporting to shut PLA out of the Chilean export trade to Canada, and in the “Rosy Glow” variety generally, was a fundamental breach of the Licence and a repudiation of the Option Deed, and there was an implied term that in those circumstances APAL would be obliged to re-assign the marks in suit back to PLA.

APAL appealed, primarily against the finding that the Option Deed extended beyond the defined marks listed in its schedule, including to the later refreshed mark, or alternatively had been varied to have that effect. The Court of Appeal (Tate, Ferguson and McLeish JJA) allowed the appeal for the following reasons.

At first instance, Croft J held that it was a relevant surrounding circumstance that, when the Option Deed was executed, both parties knew that IPLA was proposing to replace the PINK LADY logo, which was included in the schedule to the Option Deed (and which included the image of a kangaroo), with an almost identical logo to be used throughout the world for brand consistency (i.e. the logo without any “national identifiers”) – an event that would render the Licence “worthless”. His Honour held that “it is clear that knowledge of this surrounding circumstance and the fact that the clause 5.1 Licence was granted in perpetuity compels the conclusion that it was an implied term that the clause 5.1 Licence would subsist over any refreshed trademark, whenever introduced.” The authors note that the two logos are very similar, to the point that PLA, as exclusive licensee of the original logo, might have been able to restrain a third party’s use of the “refreshed” logo on the basis that the refreshed logo was “deceptively similar” to the original logo, at least according to Australian trade mark law. In that sense, the Licence would not have been “worthless”. This, and Chilean trade mark law generally, are matters that do not seem to have been considered in the proceeding at either level, however.

Justice Tate (Ferguson and McLeish JJA agreeing) found that the trial judge had erred in his conclusion. Much of the parties’ submissions centred around the ongoing debate as to the admissibility of (objective) extrinsic evidence to a contract when called upon as an aid to construction, and whether surrounding circumstances can be used to identify whether a contractual provision is ambiguous or whether ambiguity first must be identified before such extrinsic material can be considered. The authors note that, in this regard, contract lawyers will be assisted by her Honour’s careful summary of the key authorities.

Her Honour observed that, based on those authorities, the issue remains unresolved. However, in the present case, the relevant marks the subject of the Licence were clearly defined by reference to their application and registration numbers, and there was no “absurdity” or “futility” (as PLA contended) in confining the Licence to those marks. As her Honour noted, “Numerical identification is quintessentially unambiguous”. Further, the Licence remained valuable for the years up to 2010 (when the refreshed logo was adopted by the IPLA) and because of other rights granted therein; it is not part of a court’s role to “construe an agreement that otherwise has an explicable commercial result in a manner that increases the commercial benefits to one party to the agreement.” The Option Deed generally was “commercially explicable” as a means of resolving tensions that had arisen from PLA applying for the relevant marks in Chile at the time (which APAL discovered only through a trade marks alert service).

Her Honour also rejected PLA’s submission that “in perpetuity” as used in the Licence could mean “incapable of being brought to an end”, as opposed to the more conventional meaning of “without limit as to time”. In this regard, PLA was not relying upon the surrounding circumstances to resolve any ambiguity; rather, by invoking what was claimed to be the mutual understanding of the parties, PLA impermissibly sought to introduce ambiguity and displace the meaning of the text in the Option Deed. In any event, her Honour held that the extrinsic material relied upon by PLA did not support the trial judge’s construction of the relevant provisions of the Option Deed and the Licence.

Justice Tate also resolved the remaining issues in favour of APAL. That is, her Honour held that, contrary to the trial judge’s findings, APAL had not repudiated the Option Deed, but PLA did when it later applied for additional PINK LADY marks in Chile (and thereby evidenced an intention not to be bound by the agreement). APAL was entitled to accept that repudiation, and did so when it terminated the Option Deed. Further, on a proper construction, the Option Deed did not include any obligation to reassign the licensed marks; such a term did not meet the criteria for implication of contractual terms, and PLA would have other remedies available to it if APAL refused to honour the Licence.

Interestingly, her Honour did not make findings as to whether the Licence survived termination so as to allow the PLA to use the refreshed mark, on the basis that the matter was not relevant because the Licence did not extend to the refreshed mark. As noted above, however, the authors query whether the licence of the original mark may still be of some utility to PLA against third parties, although PLA would be unlikely to have any action against APAL’s use of the refreshed mark, assuming APAL obtained registration of the refreshed mark in the relevant jurisdictions and the statutory defence of using a right granted under the relevant statute applies in those jurisdictions.