Ward Equipment Ltd v Preston

• Jurisdiction: New Zealand
• Judge: French,Winkelmann JJ,Winkelmann J,Kós P
• Judgment Date: 10 October 2017
• Neutral Citation: [2017] NZCA 444
• Docket Number: CA145/2017
• Court: Court of Appeal
• Date: 10 October 2017

Between

Ward Equipment Limited

First Appellant

TPL Limited

Second Appellant

and

Markus Johannes Preston

First Respondent

Preston Hire (NZ) Limited

Second Respondent

Preston Hire Group NZ Limited

Third Respondent

Mevon Pty Limited (ACN 002 601 363)

Fourth Respondent

[2017] NZCA 444

Court:

Kós P, French and Winkelmann JJ

CA145/2017

IN THE COURT OF APPEAL OF NEW ZEALAND

Contract — Appeal against a decision of the High Court which found that a licence agreement was subject to an implied term that it was terminable on reasonable notice where the agreement contained an express termination provision

Counsel:

DJG Cox for Appellants

J D McBride and P T Hall for Respondents

• A The appeal is allowed.

• B The declaration made in the High Court is set aside.

• C Declaration made that the licence agreement was not terminable at will and on reasonable notice.

• D The respondents must pay the appellants one set of costs for a standard appeal on a band A basis and usual disbursements.

• E Costs in the High Court are to be addressed in that Court.

JUDGMENT OF THE COURT

REASONS

French and Winkelmann JJ	[1]
Kós P	[84]

French AND Winkelmann JJ

(Given by Winkelmann J)

1 The first appellant, Ward Equipment Ltd, and the fourth respondent, Mevon Pty Ltd, are parties to a licence agreement by which Mevon licensed Ward to import, hire and sell a range of patented construction products, and also granted the exclusive right to the use of the Preston trade mark in New Zealand. 1 The second appellant, TPL Ltd, claims to be a sub-licensee under that agreement. The issue on this appeal is whether Mevon was entitled to terminate the licence agreement on reasonable notice and, if so, whether three months' notice was enough.

2 In the High Court Fogarty J found that the licence agreement was subject to an implied term that it was terminable on reasonable notice in the absence of breach of the contract, and that three months was reasonable notice. 2 Ward and TPL now appeal that finding. They argue that the implication of such a term is inconsistent with the express agreement reached between the parties. Alternatively, if a term requiring reasonable notice is to be implied, three months is not reasonable notice.

3 For reasons we set out below we conclude that Fogarty J erred in construing the licence agreement as terminable on reasonable notice. We do not therefore go on to consider Ward and TPL's second submission that if the licence agreement were terminable on reasonable notice, three months' notice was not enough.

Factual background

4 In 1998 Mr Timothy McMaster, as director of an equipment-hire company called The Trestle Plank & Ladder Hire Co Ltd (Trestle Hire), negotiated a licence agreement with Patent Marketing Corp Pty Ltd, a company associated with Mr John Preston — the inventor of a number of innovative items of construction equipment and machinery.

The terms of the licence agreement

5 The licence agreement granted rights to the use of intellectual property which included copyrights, patents and trade marks, and all know-how which might be of commercial use in relation to the products. The licensed products included multiple-use platforms, decks, rubbish chutes and delivery shuttles designed by Mr John Preston. It seems the most desirable item to which rights were acquired was the “SuperDeck”. This is a cantilevered, retractable, crane-loading platform system. It is designed to simplify the handling of materials on multi-storey and high-rise construction sites. A tower crane can transport large construction objects between building floors on a construction site, with SuperDecks on each floor being “rolled in and out” to take materials.

6 Under the licence agreement Trestle Hire obtained:

• (a) an exclusive licence to import, hire, sell, modify, adapt and use the products in New Zealand;

• (b) Patent Marketing's undertaking that it would not use the name “Preston”, the Preston corporate colours and the Preston trade mark in New Zealand; and

• (c) a right to grant sub-licences to any third party to enable that third party to sell and hire the products in New Zealand.

7 As consideration for the licence, Trestle Hire agreed to pay a lump sum amount of AUD 208,171, which included a one-off licence fee of AUD 25,000 and the purchase price for equipment. It also agreed to pay a seven-per-cent royalty on money received by it for the sale, hire, lease or use of the products, but that there would be a minimum royalty fee of not less than AUD 10,000 for the first year, AUD 15,000 for the second year, and then AUD 15,000 for each year thereafter but with ongoing adjustments reflecting the Consumer Price Index for each preceding year.

8 In cl 8.5 of the licence agreement, Trestle Hire also undertook that it would “exploit and/or manufacture the Products in the Territory in an honest, diligent, trustworthy and professional business like manner”.

9 The licence agreement contained express provision for termination. We set out these provisions below at [59]. In short, the licensee and licensor were able to terminate for breach. In addition, the licensee could also terminate at the expiration or lapse of the patents.

Dealings between the parties 1998–2012

10 The arrangements functioned over the years, but changes were agreed. In 2003 Trestle Hire obtained Patent Marketing's agreement to expunge the minimum royalty clause from the licence agreement. There were also changes to the identity of both the licensee and the licensor.

11 The first respondent, Mr Markus Preston, is Mr John Preston's son. In 2004 Mevon, a company associated with Mr Markus Preston, acquired the Preston trade marks and the patents for the SuperDeck product. We were not given the precise date, but at some point in time between 2004 and 2012 Patent Marketing assigned its licence agreement with Trestle Hire to Mevon.

12 By 2012 Trestle Hire was experiencing financial difficulties and it was placed in voluntary liquidation by Mr McMaster on 13 August 2012. On 1 September 2012 Ward acquired all the assets of Trestle Hire from the liquidators as a going concern, with plans to operate Trestle Hire's business through a subsidiary, TPL (trading under the name TPL Access Hire).

13 Mr McMaster and the director of Ward, Mr Stephen Ward, negotiated with Mr Markus Preston for a transfer of the licence agreement to Ward. Those negotiations concluded in May 2013, and the terms of the agreement were recorded in a letter signed by Mr Ward for Ward and Mr Markus Preston for Mevon. The operative clauses of the 2013 agreement are as follows:

5. The purpose of this letter, when signed and acknowledged by both parties, is to place on record, in consideration of Ward Equipment Ltd making payment to the Licensor for all outstanding royalties up to the date of liquidation and amounting to $NZ 1,943.42, that all continuing rights, obligations and liabilities of the Licensee under the said agreement (except for clause 6.2(b) shall be granted to and accepted by Ward Equipment Ltd. Payment shall be made to a NZ bank account to facilitate payment and repatriation of royalties.

6. It is acknowledged by both MEVON PTY Ltd and Ward Equipment Ltd that the terms of the said Agreement were amended with an exchange of letters dated 9 April 2002, 30 April 2002, 30 May 2002 and 12 June 2002 and that, by virtue of this exchange, that clause 6.2(b) has been expunged from the said Agreement by the original parties.

7. In consequence of the above, the said Agreement shall continue in force for the duration of the contract with Ward Equipment Ltd becoming the Licensee in place of The Trestle Plank and Ladder Hire Company Ltd.

14 This agreement is, in our view, best regarded as a novation of the licence agreement whereby Ward assumed all of Trestle Hire's rights and obligations under the existing agreement with Mevon.

15 Mr Markus Preston's evidence was that Mevon consented to what he characterised as an assignment of the licence agreement on the basis that Mr Ward would have capital and enthusiasm for making the SuperDeck product the success in New Zealand that it was in Australia. He understood that Mr McMaster would work for the new company that had been established by Mr Ward and he saw these developments as positive. In an email he sent on 28 November 2012, he said:

In essence, our discussion and relationship going forward is based around good faith and as agreed we wish to assist [Ward] in improving the Superdeck product in NZ.

Events leading up to termination

16 In March 2015 Mr Markus Preston told a meeting attended by both Mr Ward and Mr McMaster that Mevon intended to enter the New Zealand market. But Ward was told that the New Zealand business would not include the licensed products and that Mevon would respect Ward's rights as licence holders of the SuperDecks.

17 At some point Mevon became disappointed with Ward's performance. In July 2015 the general manager of the Preston group of companies wrote to Ward suggesting the parties negotiate sale to the Preston group of the “rights and Preston Superdeck ^TM product in NZ”. Ward did not take up that invitation, but rather sought a transfer of the licence agreement to a new company to be run by Mr McMaster's son Mr Nick McMaster and TPL's scaffolding manager Mr Darcy Harkness. Mevon was not keen on that proposal. In an email sent to Ward in response, Mr Markus Preston said:

With only a handful of SuperDeck's in the fleet, with many of varying degrees of condition, some unusable, how do Nick and Darcy (or Ward) plan to service the NZ market, maintain the SuperDeck name, and service the growing demand?

If we were to even consider any transfer, a detailed plan from Nick or other would have expected at the least in order to assure us of its financial security.

18 Although the letter suggested that Mevon had underlying concerns about...