In the recent decision of Austral Masonry (NSW) Pty Ltd v Cementech Pty Limited [2014] FCAFC 72 the Full Federal Court, in rejecting an appeal by Austral, found that the liability of a licensee to contribute to litigation costs continued after the expiration of the licence.

Austral Masonry (NSW) Pty Ltd (Austral) and Cementech Pty Ltd (Cementech) were parties to an Intellectual Property Licence Agreement made on 11 February 2010 which permitted Austral to exploit a patent owned by Cementech.

The term of the Licence Agreement was four years and ended on 11 February 2014. Before the agreement expired, however, Cementech commenced proceedings against Adbri Masonry Pty Ltd (Adbri) for infringement of the patent.

In those proceedings, Cementech sought contributions from Austral for the costs of the proceedings pursuant to clause 9.2(b) of the Licence Agreement. Clause 9.2(b) provided that, in the event Cementech initiated proceedings for prosecuting or defending any claims with respect to intellectual property, “all expenses incurred by [Cementech] in conducting such proceedings or defending any claims will be borne by the parties equally…”

While the proceedings were commenced prior to the expiration of the term of the Licence Agreement, Austral argued that its obligations under cl. 9.2(b) expired on the end of the term.

This argument was rejected at first instance. The primary judge noted that once Cementech elected to initiate proceedings, “Austral’s obligation to bear 50 per cent of the costs of the proceedings [was] enlivened and that the expiry of the Licence Agreement [made] no difference to that obligation.”

On appeal, Austral argued that it could not have been the common intention of the parties for the obligations under cl. 9.2(b) to continue after the expiration of the term. In particular, it pointed to the fact that Austral no longer had any commercial interest in maintaining the proceedings once the term had expired.

The Full Federal Court rejected Austral’s arguments, finding that it must have been the common intention of the parties that Cementech might commence proceedings during the term which would continue after the expiry of the term. The fact that the agreement was simple and could produce harsh or even unfair consequences for Austral was no reason to rewrite the commercial deal they did.

The decision highlights the need for parties to commercial agreements to specify clearly the consequences of the agreement coming to an end. The Court will not rewrite contracts for people who have entered into bad bargains.