Airphysio Pty Ltd v Harbour Capital Asset Management Pty Ltd [2024] QCA 173

SUPREME COURT OF QUEENSLAND CITATION: Airphysio Pty Ltd v Harbour Capital Asset Management Pty Ltd [2024] QCA 173 PARTIES: AIRPHYSIO PTY LTD ACN 607 523 697 (first appellant) AIRPHYSIO IP HOLDINGS PTY LTD ACN 612 558 504 (second appellant) BETTER BREATHING DEVICES PTY LTD ACN 653 856 663 (third appellant) v HARBOUR CAPITAL ASSET MANAGEMENT PTY LTD ACN 611 548 004 (first respondent) ADRIAN BANDUCCI (second respondent) GUY BANDUCCI (third respondent) FILE NO/S: Appeal No 4513 of 2024 SC No 6798 of 2023 DIVISION: Court of Appeal PROCEEDING: General Civil Appeal ORIGINATING COURT: Supreme Court at Brisbane – [2024] QSC 33 (Bradley J) DELIVERED ON: 17 September 2024 DELIVERED AT: Brisbane HEARING DATE: 16 August 2024 JUDGES: Dalton and Boddice JJA and Wilson J ORDERS: 1. The appeal is dismissed with costs. 2. The cross-appeal is allowed: (a) the answer to question 1 is, “AP and AIPH breached cl 6.1 of the Deed by failing to give HCAM an IPR Transfer Notice once AIPH wished to enter into the BBD Licence Agreement and before it did so”. (b) the answer to question 2 is, “AP and AIPH were required to give HCAM an IPR Transfer Notice in accordance with cl 6.2 of the Deed -- 1 of 15 -- 2 once AIPH wished to enter the BBD Licence Agreement and before it did so”. CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – where the first appellant developed and sold a handheld physiotherapy device (the product) – where the first appellant agreed to pay the first respondent a royalty per product sold under a Royalty Deed – where the first appellant agreed to give an “IPR Transfer Notice” to the first respondent if it intended to sell, transfer, or assign all or any part of the business which exploited the intellectual property rights in the product and a “Product Transfer Notice” to the first respondent if it wished to sell, transfer, or assign its right to manufacture or distribute the product – where the first appellant entered an agreement with the second appellant to relinquish the exclusivity of its licence (Licence Amendment Agreement) – where the second appellant entered into a licence agreement with the third appellant (BBD Licence Agreement) – where the respondents allege the third appellant began selling a device which was materially identical to the product and paid no royalties on the sales – whether the first appellant and the second appellant breached the Royalty Deed by failing to give an “IPR Transfer Notice” once the second appellant wished to enter into the BBD Licence Agreement – whether the first appellant breached the Royalty Deed by failing to give a “Product Transfer Notice” once it wished to enter into the Licence Amendment Agreement Uniform Civil Procedure Rules 1999 (Qld), r 483 Coles Myer Ltd v Commissioner of State Revenue (Vic) [1998] 4 VR 728; [1998] VSC 288, considered Freedom Willetton Pty Ltd v Commissioner of State Revenue (WA) [2021] WASCA 38, cited Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, considered COUNSEL: R J Anderson KC, with B W Kidston, for the appellants N H Ferrett KC, with J P Hastie, for the respondents SOLICITORS: Ellem Warren Napa Lawyers for the appellants Macpherson Kelley for the respondents [1] DALTON JA: This is an appeal from a decision determining the answer to four questions pursuant to r 483 of the Uniform Civil Procedure Rules 1999 (Qld) (UCPR). In my view the appeal must be dismissed. There is a cross-appeal which should be allowed. These are my reasons. Factual Matters [2] The first appellant (AP) was incorporated in August 2015 with a Mr Nash as its sole director. Three other directors (O’Brien, Owen and Daley) were appointed in -- 2 of 15 -- 3 December 2015. These four men were the shareholders in AP. In July 2016 Mr Nash ceased to be a director. The second appellant (AIPH) was incorporated in May 2016 with O’Brien, Owen and Daley as its directors. Daley did not remain long in the role. [3] In April 2016 Nash informed the second and third respondents that he owned 30 per cent of AP’s shares and wished to sell a five per cent shareholding in AP for $50,000. The second and third respondents agreed with Nash that the first respondent (HCAM) would buy their shares. The transaction took place, but O’Brien, Owen and Daley caused AP to refuse to register the share transfer and, as a consequence of the transaction, removed Nash as a director of AP. In an affidavit sworn on the application below, the second respondent swore that “at this time [the first respondent] was caught up in the dispute between Mr Nash and his fellow directors and shareholders”. [4] A mediation of the disputes between Nash and his fellow directors and shareholders, and the respondents was held on 14 December 2016. A settlement agreement was reached and recorded in a document entitled Binding Heads of Agreement and Essential Terms (HOA). On the application below the first respondent swore that, “The effect of the settlement was both Mr Nash and [HCAM] transferred their respective [interests] in AP and AIPH for a nominal value of $1 in exchange for [HCAM’s] right to receive a royalty in perpetuity of $3 plus GST per product sold by AP”.1 A little more of the background to the dispute and its settlement is found in the recitals of the HOA. “A. AP has developed and sells a drug-free handheld lung physiotherapy device (the ‘Product’). B. [Nash] has been a lender to AP and a 30% shareholder in AP and has asserted ‘oppression’ and other allegations as against all the AP Parties relating to his removal as a director of AP and the Assertions referred to below (the ‘Claims’). C. [Nash] and HCAM entered into an agreement for [Nash] to sell and HCAM buy 5% of the shares in AP (the ‘Sale’) and the HCAM parties have supported [Nash] in the Claims. D. The AP Parties assert that [Nash] has breached an AP shareholders agreement and must forfeit his shareholding in AP and is entitled only to 9.5% of the shares in AIPH (the ‘Assertions’). E. Without admission, the [Nash and Respondent] Parties and AP Parties (collectively, ‘the parties’) have agreed to settle and compromise all claims, past, present and future, including relating to the Claims, Sale and Assertions on the terms contained in this agreement.” [5] At cl 2.6 of the HOA it was provided: “2.6 Detail / Mechanics – This binding heads of agreement and essential terms sets out the basis upon which the parties have settled the proceeding and all other issues in dispute. [Nash] 1 The first respondent’s subjective understanding of the effect of the settlement agreement was not objected to below and for narrative purposes only at this part of the judgment, it is sufficient. -- 3 of 15 -- 4 will prepare, and the parties will execute and exchange a agreement of settlement and release more fully setting out the settlement (the ‘Agreement’), however, the parties acknowledge that this document is binding upon them.” [6] For present purposes the bargain between the parties documented in the HOA was as follows: “1.1 Release and Discharge – Subject to the parties fulfilling their obligations pursuant to clause 2.6, each of the parties hereby release and discharge each of the other parties, and (where applicable) their officers, employees and agents, in respect of all of the Claims, the Sale and the Assertions and in respect of any and all other dealings between the parties prior to the execution of this agreement. 1.2 [Nash] Share Transfer – [Nash] agrees to transfer all his shares in AP and AIPH for $1.00 to [O’Brien, Daley and/or Owen] in their respective proportions (or their nominees) and to forgive any loan and other rights associated with AP and AIPH and at his own cost to provide to AP within 30 days any and all documents necessary to give effect to the transfer. 1.3 AP Commission to HCAM (or nominee) – AP agrees to pay to HCAM or nominee AUD$3.00 (+GST, if applicable) per Product (or future developed version of the Product) sold in perpetuity as a commission. This commission will be accounted for, and payable, on a calendar monthly basis for the Products that AP has received payment for in full (i.e. not upon receipt of merely a deposit). … 1.4 First Right of Refusal – The parties agree that: 1.4.1 AP and AIPH will provide a first right of refusal in respect of any proposed transfer of intellectual property rights in the Product and if AP seeks to deal the rights to manufacture and distribute the Product then it must ensure its obligations to HCAM to pay commission are recognised; and 1.4.2 HCAM (or its nominee with the benefit of clause 1.3) will provide a first right of refusal in respect of any proposed transfer of the clause 1.3 rights.” [7] On 10 February 2017, in compliance with cl 2.6 of the HOA, the parties entered into a document entitled Share Sale and Royalty Deed. It is this document which is the basis for the respondents’ claim against the appellants in the trial division. Under the Royalty Deed Nash was obliged to sell to O’Brien, Daley and Owen all his shares in AP and forgive his loan to AP and AIPH for the sum of $1.00 – cl 3. This took place. Clause 5.1 of the Royalty Deed provided: “Subject to the execution of this Deed and Completion, from Completion AP agrees to and must pay HCAM or its nominee -- 4 of 15 -- 5 a royalty in perpetuity of $3.00 (excluding GST) per Product it sells within Australia or globally (Royalty).” [8] The term Product was defined by the Royalty Deed to mean, “a drug-free handheld lung physiotherapy device, including any future developed version of the drug-free handheld lung physiotherapy device (not including spare parts and/or accessories)”. [9] Clause 5 was one of two clauses which benefitted HCAM. The other clause was cl 6, entitled “First right of refusal”. Clause 6.1 of the Royalty Deed provided as follows: “6.1 HCAM’s first right of refusal in relation to the Intellectual Property Rights of the Product The parties agree that if AP and AIPH wish to sell, transfer, assign (collectively Transfer of IPR) all or any part of the Business, which exploits the Intellectual Property Rights in or to the Product (Product IPR), AP and AIPH must give written notice to HCAM of its intention (IPR Transfer Notice).” [10] The Royalty Deed defined Business as meaning “the business carried on by AP and AIPH being the development and sale of the Product”. The term Intellectual Property Rights was also defined in the Royalty Deed: “Intellectual Property Rights (or IPR) means all intellectual property and proprietary rights (whether registered or unregistered), including: (a) business names; (b) trademarks; (c) any right to have information (including Confidential information) kept confidential; and (d) patents, patent applications, drawings, discoveries, inventions, improvements, trade secrets, technical data, formulae, computer programs, data bases, know-how, logos, designs, design rights, copyright and similar industrial or intellectual property rights.” [11] Clause 6.2 made mechanical provision for the exercise of the right of first refusal in relation to intellectual property rights pertaining to the product. [12] Clause 6.3 of the Royalty Deed gave a second right of first refusal, this time in relation to manufacture and distribution of the product: “6.3 HCAM’s first right of refusal in relation to manufacturing and distribution of the Product The parties agree that if AP wishes to sell, transfer, assign (collectively Product Transfer) its right to manufacture or distribute the Product or both, AP must give written notice to HCAM of its intention (Product Transfer Notice). For the sake of clarity, this clause is not intended to restrict AP’s right to appoint sub-distributors.” [13] Clause 6.4 of the Royalty Deed made mechanical provision for the exercise of that right of first refusal. -- 5 of 15 -- 6 Disputes Between the Parties [14] The proceeding in the trial division is brought by the respondents (as plaintiffs) against the appellants. It alleges several breaches of the Royalty Deed but the judge below, and this Court, was only concerned with one of them. The allegations in relation to the relevant breach begin at page 18 of the statement of claim under the heading “E. BBD BREACH”. [15] The third appellant (BBD) was incorporated on 21 September 2021. Owen and O’Brien are its directors and (through an intermediary company) its only shareholders. By the statement of claim in the trial division the respondents allege that from 21 September 2021 BBD began selling a drug-free handheld lung physiotherapy device which was identical to, or materially identical to, the Product as defined in the Royalty Deed, and that from that time onwards the sales of the Product (as defined) by AP declined from a monthly average of $1.4 million to an amount of about $350,000 per month. The appellants pay the respondents no royalties on sales of the devices sold by BBD. Various claims are made against the appellants arising from these facts. To consider the judgment below, two are relevant: it is pleaded that AP and AIPH have breached cll 6.1 and 6.3 of the Royalty Deed. Determination of Questions Below [16] The four questions determined by the primary judge, and his answers, are set out in his formal order of 23 April 2024 as follows: “(a) Question 1: Did entry into the BBD License Agreement (as that term is defined in paragraph 45 of the Defence) breach clause 6.1 of the Deed (as that term is defined in paragraph 5 of the Statement of Claim)? Answer: Yes. [AIPH] breached the covenant in clause 6.1 of the Deed by failing to give [HCAM] an IPR Transfer Notice once [AIPH] wished to enter into the BBD License Agreement and before it did so. (b) Question 2: If the answer to Question 1 is ‘yes’, were [AP and AIPH] required to give [HCAM] an IPR Transfer Notice or, alternatively a Product Transfer Notice pursuant to clause 6.2, alternatively clause 6.4 of the Deed? Answer: Yes. [AIPH] was obliged to give [HCAM] an IPR Transfer Notice in accordance with clause 6.2 of the Deed once [AIPH] wished to enter into the BBD License agreement and before it did so. (c) Question 3: Did [AP], to facilitate the transaction effected by the BBD License Agreement, transfer or assign its exclusive manufacturing and distribution rights it had under the AP- AIPH License Agreement (as that term is defined in paragraph 8(c)(ii) of the Reply) in breach of clause 6.3 of the Deed? Answer: Yes. [AP] relinquished to [AIPH] the exclusive right to use and exploit the identified intellectual property rights in the business of marketing and distributing -- 6 of 15 -- 7 the product to facilitate a transaction of the kind effected by the BBD License Agreement. [AP] breached clause 6.3 of the Deed by failing to give [HCAM] a Product Transfer Notice once [AP] wished to enter into the AP License Amendment by which it relinquished its exclusive right and before it did so. (d) Question 4: If the answer to Question 3 is ‘yes’, was [AP] required to give [HCAM] a Product Transfer Notice pursuant to clause 6.4 of the Deed? Answer: Yes. [AP] was obliged to give [HCAM] a Product Transfer Notice in accordance with clause 6.4 of the Deed once [AP] wished to enter into the AP License Amendment and before it did so.” [17] The questions set out above are slightly different to those set out at the end of the judgment below, which is unfortunate. [18] Further difficulties arise because the questions are themselves poorly drafted. They should be susceptible of a yes/no answer and not contain multiple sub-parts and alternatives. As a result, the answers given by the judge below incorporate a short summary of his reasons. This is undesirable because of the potential for differences between the reasoning in the reasons for judgment and the short form of that reasoning contained in the answers to the questions. In fact that has caused difficulty in this case, see below as to the cross-appeal. [19] Further, it can be seen that insufficient thought has been given to the questions. Looking at question 1, for example, and cl 6.1 of the Royalty Deed, in truth, entry into the BBD Licence Agreement could not be a breach of cl 6.1. The obligation in cl 6.1 is to give a notice. If attention is then turned to question 2, it can be seen that although it refers to cl 6.2 and cl 6.4, it is really concerned with the notices required by cl 6.1 and cl 6.3. There are other difficulties. Before an order is made for the hearing of separate questions pursuant to r 483 of the UCPR, the judge making the order should satisfy themselves as to the precise terms of the questions which are to be asked. If this means that the application for separate questions has to be adjourned while counsel redraft questions, then so be it. It is better than the parties and the court using considerable resources to answer poorly thought-out questions. Licensing Agreements [20] Before coming to the grounds of appeal, it is necessary to discuss the licensing agreements made between the three appellants. [21] AIPH was originally the owner of all relevant intellectual property relating to the Product. This was the situation at the time the HOA and Royalty Deed were made. That having been said, at the time of the HOA and Royalty Deed, there was an agreement in place between AIPH and AP whereby AIPH allowed AP to use that intellectual property in manufacturing and selling the Product. That this arrangement was in place at that time was not controversial before the primary judge, or on this -- 7 of 15 -- 8 appeal. It appeared2 that there was no written document regulating the use of the intellectual property by AP at the time of the HOA and Royalty Deed. At about the time the dispute between Nash on the one hand, and the others interested in AP and AIPH arose, there were discussions about formalising the situation with a written agreement. [22] On 3 March 2017, after the HOA and the Royalty Deed, AIPH and AP executed a written agreement formalising the use of the intellectual property by AP. It was entitled “AirPhysio Pty Ltd License to Use Intellectual Property”. [23] The agreement recited that AIPH was the owner of intellectual property and had agreed to give AP permission to use it. The intellectual property was defined as follows: “Intellectual Property includes but is not limited to the Name, Patent, Trade Mark, common law and registered trademarks, patents, copyrighted material, logos, designs, documentation, insignias, emblems, know-how, procedures, manuals, training methods and programs, marketing information, client lists and other confidential information, computer software and all other material however embodied, that will be used in the Business.” [24] To fully understand that definition it is necessary to have regard to the definition of Business: “Business the business of marketing and distributing the Product and other health and medical devices from time to time including but not limited to entering into distribution agreements with distributors to on-sell the Product in designated territories.” [25] Finally it is necessary to have regard to the definition of product: “Product means the AirPhysio respiratory device known as ‘AirPhysio’.” [26] The grant of the licence was exclusive, cl 1.2. However, it was terminable at will by AIPH, cl 5.2. [27] AP and AIPH’s entry into this licence agreement was not a cause for complaint by the respondents. Essentially it made formal what had previously been understood informally by all relevant people. Licence Agreement Amendment [28] BBD was incorporated on 21 September 2021. It is controlled by the same natural persons who control AP and AIPH. [29] On 25 October 2021 AP and AIPH made an amendment to the Licence Agreement just discussed. The agreement is very short and may not have been drafted by a lawyer. It refers to the 3 March 2017 Licence Agreement and then says: 2 The litigation is at a relatively preliminary stage and I note that at the time this matter was heard below, disclosure had not taken place. -- 8 of 15 -- 9 “In accordance with Schedule 1 – General Provisions Clause 2. Variation, The Licensee and Licensor wish to amend Clause 1. Grant of Exclusive License to become a Non Exclusive License agreement. The purpose of the amendment is to allow for the business to be carried out globally where by other parties may use the Intellectual Property to operate and conduct of the Business as per the definition of the agreement.”3 BBD Licence Agreement [30] A few days later, on 4 November 2021, AIPH and BBD entered into a Licence Agreement which does look to have been formally drawn by lawyers. It recited that BBD wished to licence Intellectual Property for the purpose of carrying on a Business and that AIPH agreed to a non-exclusive licence of the Intellectual Property. [31] The terms “business”, “intellectual property”, and “product” were all defined: “‘Business’ means the business of manufacturing, marketing and distributing the Product including, but not limited to, entering into manufacturing, marketing and/or distribution agreements with others relating to the Product in the Territory.” “‘Intellectual Property’ means the Name, Patent, Trade Mark, common law and registered trademarks, patents, copyrighted material, logos, designs, documentation, insignias, emblems, know-how, procedures, manuals, training methods and programs, marketing information, client lists and other confidential information, computer software and all other material however embodied, that is provided by the Licensor for use in the Business.” “‘Product’ means the Licensor’s device known as ‘Airphysio’.” [32] The licence was expressly not exclusive – cl 2.1. The licence was able to be terminated for fault, or on six months’ notice – cll 11.1 and 11.2. At cl 6 it was provided that BBD could use the Intellectual Property for the purpose of carrying on the Business. [33] The respondents argued below, and on appeal, that the Amendment Agreement and the BBD Licence Agreement were a contrivance to divert sales of the Product to BBD and thereby reduce royalties payable to HCAM. Questions 1 and 2 – Appeal Ground 2(b) [34] Questions 1 and 2 concerned cll 6.1 and 6.2 of the Royalty Deed. They should be interpreted as asking whether AIPH and AP breached cl 6.1 by failing to give an IPR Transfer Notice once AIPH wished to enter into the BBD Licence Agreement. [35] Both below and on appeal the appellants argued that cl 6.1 did not catch the BBD Licence Agreement because the words “sell, transfer, assign … all or any part of the Business, which exploits the Intellectual Property Rights in or to the Product” were 3 I wonder if there was any consideration for this agreement, but the point was not raised below, or on appeal. -- 9 of 15 -- 10 not wide enough to capture AIPH’s licensing BBD to use the Intellectual Property in relation to the Product. As to this the primary judge said: “[26] Each of the HOA, Deed, AP Licence Agreement, AP Licence Amendment and BBD Licence Agreement is a commercial agreement, executed by commercial parties. The now conventional principles of construction apply.4 Each instrument is to be construed as a whole. Its meaning is determined objectively by reference to the text, context, and purpose. Its terms mean what a reasonable businessperson would have understood them to mean, having regard to the text, context and purpose of the instrument. It must be construed to avoid making commercial nonsense or creating commercial inconvenience. It is construed practically, to give better effect to its purpose. It is inappropriate to adopt a narrow or pedantic approach to its construction.”5 [36] On appeal it was argued that this construction ought not to have been adopted because the parties to the Royalty Deed were not “commercial partners seeking to forge an ongoing relationship”. They were former business partners documenting a resolution to a dispute “in their own best interests”. No authority was cited for the proposition that Mount Bruce, and associated cases, do not apply to the construction of an agreement made between parties who are not in the first flush of commercial happiness. I reject it. Nor do I think it matters that both parties were represented by lawyers. In large commercial transactions both parties generally are represented by lawyers and generally do act in their own best interests. There is nothing in this point. [37] Next it was submitted that the ordinary meanings of the words “sale, transfer and assignment” did not extend to the granting of a licence. As to this the primary judge said: “[29] I reject the submissions put for AP, AIPH and BBD that the words ‘sell, transfer, assign’ in clauses 6.1 and 6.3 of the Deed should be construed as having the technical legal meaning each word has in real property conveyancing or personal property practice. In clauses 6.3 and cl 6.4 of the Deed, the parties expressly contemplated a sale, transfer or assignment of intellectual property rights that AP held under a licence from AIPH. So, I reject Mr Kidston’s contention that the grant of a licence or lease to use intellectual property could not be a transfer within the meaning of the Deed, because it is only a ‘temporary use’ and not a ‘permanent alienation’ of AP’s rights. In any event, AP did not license or lease the exclusive rights back to AIPH for some period. Nor did … AP retain any right to recover them. AP relinquished its exclusive rights to AIPH permanently. [30] In Coles Myer Ltd v Commissioner of State Revenue (Vic), the Victorian Court of Appeal considered whether a company ‘buying back’ its own shares was a ‘transfer’ within the meaning of the relevant legislation. Ormiston JA observed: 4 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116-117 [46]-[51] (French CJ, Nettle and Gordon JJ). 5 This summary is drawn from that in Freedom Willetton Pty Ltd v Commissioner of State Revenue (WA) [2021] WASCA 38, [84] (Buss P, Murphy and Vaughan JJA). -- 10 of 15 -- 11 ‘Although the word “transfer” is not a term of art and is a word of wide connotation, to my way of thinking it is the passing of rights to another, so as to vest them in that other person, which is essential to a transfer, properly understood. It is not a mere disposition, a ridding oneself of the right or interest, it is the vesting in the transferee of that right or interest, precisely or substantially, which is necessary to effect a transfer, as ordinarily understood in the law.’ [31] His Honour concluded that ‘the real nature and substance of the instrument’ determined whether or not it was a transfer; what it ‘effectuates’, not the ‘label on the instrument’.” [38] I think the primary judge was right to reject this argument. To properly understand cl 6.1, the words “sell, transfer, assign” cannot be looked at in isolation from the rest of the clause. What was being spoken of was selling, transferring or assigning all or any part of the business (as defined) which exploits the intellectual property rights (as defined) in relation to the Product. That is, what was being spoken of was a sale, transfer or assignment of largely, if not wholly, incorporeal rights, or “any part of” them. When the subject matter is considered, it is clear that sale, transfer or assignment of part of such rights could be by licence, which might be limited by subject matter, time, or geographical bounds. [39] Further, the commercial point of the Royalty Deed, the parties’ bargain, was that the respondents gave up the shares which they had paid for but, in return, were given a royalty stream and, by cl 6 of the Royalty Deed, some protection against loss of that royalty stream should AP and AIPH wish to divest themselves of the rights to licence, make and sell the product. [40] To construe cl 6.1 as the primary judge did was not to rewrite the words of the contract, but to interpret them having regard to the subject matter and purpose of the parties’ bargain. Subject to the point raised on the cross-appeal, I cannot see that his Honour was in error in answering question 1. No independent argument was advanced as to his answer to question 2. The appeal in relation to these questions must fail. Cross-Appeal [41] Lurking in questions 1 and 2 was a question which the primary judge did not resolve. While it was only AIPH which entered into the BBD Licence Agreement, question 2 in its terms asks whether or not both AP and AIPH were required to give an IPR Transfer Notice or a Product Transfer Notice. The respondents concede that they did not make any specific argument below as to whether or not AP was required to give a cl 6.1 notice, but that is what the question asks. In answering the question the primary judge answered yes, but his short summary of reasons as part of the answer refers only to AIPH. [42] The cross-appeal contends that the answer to question 2 ought to have been an unqualified yes; that is that both AP and AIPH were required to give a notice pursuant to cl 6.1 of the Royalty Deed because they both wished to sell, transfer or assign part of the business which exploited the intellectual property rights in the product. -- 11 of 15 -- 12 [43] In fact the reasons of the primary judge did decide the point which is the subject of the cross-appeal. It is just the brief summary of reasons given in the answer to question 2 which create a problem. The primary judge found as follows: “[41] From AIPH’s conduct in executing the AP Licence Amendment and the BBD Licence Agreement within a period of less than two weeks, and the common directors of AIPH, AP, and BBD, I infer that AIPH considered itself able to execute the BBD Licence Agreement only because AIPH had agreed with AP (by the AP Licence Amendment) to amend the AP Licence Agreement to render it no longer exclusive. I also infer, from the same evidence, that AIPH sought the AP Licence Amendment for the purpose of enabling AIPH to enter into the BBD Licence Agreement or a similar agreement which would give BBD the relevant authorisation and licence to conduct the authorised business. [42] No benefit accrued to AP from the AP Licence Amendment. The consequence of AP agreeing to the AP Licence Amendment was that AP’s licence to use and exploit the relevant intellectual property was made less valuable. [43] In the circumstances, I infer from AP’s conduct in executing the AP Licence Amendment and the common directorships that AP agreed to execute that instrument to enable AIPH to grant to another person or persons, including BBD, the authority to conduct the business of manufacturing or distributing the product, to enter into distribution agreements with distributors to on-sell the product, and to grant such a person or persons a non-exclusive licence to use the relevant intellectual property associated with the product in the authorised business. In other words, AP returned the relevant rights to AIPH that AIPH would then confer on another person such as BBD. [44] To effect that purpose, by the AP Licence Amendment, AP released AIPH from its binding grant of exclusive rights and accepted from AIPH a non-exclusive licence. [45] The obligation to give HCAM an IPR Transfer Notice is not confined to a wish by AP to sell, transfer or assign all or any part of the relevant business. It expressly includes a wish by AIPH to do so. Nor is the notice required only where the part that is the subject of the wish is part of the business owned or conducted by AP. It expressly contemplates a notice being required when it is part of a business carried on by AIPH (or by both AP and AIPH). [46] A business of the kind contemplated by the parties to the Deed would likely be comprised of chattels (plant, equipment, stock), the right to use the relevant intellectual property, and goodwill. It is a business that could not be carried on without a licence to use the intellectual property in the business. [47] A reasonable businessperson in the position of the parties to the Deed would have understood the words ‘if AP and AIPH wish to sell, transfer, assign … all or any part of the Business, which exploits the Intellectual Property Rights in or to the Product’ as including a desire -- 12 of 15 -- 13 by AP and AIPH (or either of them) to authorise BBD to carry on the business of manufacturing and distributing the product, including entering into distribution agreements with distributors to on-sell the product anywhere in the world. This is because that was part of the business AIPH had authorised AP to carry on and in which AIPH had licensed AP to use the relevant intellectual property rights. [48] Once the desire was put into effect, by AP and AIPH executing the AP Licence Amendment and AIPH and BBD executing the BBD Licence Agreement, part of the intellectual property and part of the goodwill formerly comprising AP’s business would become the property of BBD. A reasonable businessperson would have understood a transfer or assignment by AP and AIPH to BBD of part of the business that exploits the relevant intellectual property rights (in cl 6.1 of the Deed) as including a transaction effected by the BBD Licence Agreement by which some part of the intellectual property rights and goodwill comprised in the business of AP was transferred to BBD. [49] AP, AIPH and BBD accept that the parties included cl 6.1 in the Deed ‘to provide some protection to HCAM’s ongoing right to receive the royalty’. The clause would have no effective protective function if it were construed so that it did not operate when AP and AIPH wished to pass rights held exclusively by AP to a new corporate vehicle. [50] It follows that AP and AIPH were bound by the cl 6.1 covenant to give HCAM an IPR Transfer Notice before executing the BBD Licence Agreement. The failure of AP and AIPH to do so was a breach of the cl 6.1 covenant.” [44] I can see no error in any of the above reasoning. I would note that the Royalty Deed defines the word Business as being the business carried on by both AP and AIPH, and that the agreed factual basis for determination before the primary judge was that AP and AIPH were run by the same people and had in fact always carried on their business together at the time the Royalty Deed was entered into. The text of cl 6.1 obliges both AP and AIPH to give notice, and in that respect it contrasts the text of cl 6.3. In my view the cross-appeal should be allowed. As submitted by Counsel, there should be no order as to the costs of the cross-appeal. Questions 3 and 4 – Ground 2(a) of Appeal [45] These two questions concern AP’s entry into the Licence Amendment Agreement. Essentially the appellant’s argument was the same as that which it made in relation to the BBD Licence Agreement: that AP’s entry into the Amendment Agreement could not constitute a sale, transfer or assignment within the meaning of cl 6.3 of the Royalty Deed. [46] Viewed purely as a matter of the language used at cl 6.3, it must be acknowledged that the appellants are on stronger ground in relation to AP’s entry into the Licence Amendment Agreement. AP did not give up its right to manufacture or distribute the product by entering into the Licence Amendment Agreement. It gave up the exclusive right to manufacture and distribute the product. Nonetheless, I am not convinced the primary judge was in error. -- 13 of 15 -- 14 [47] The judge below relied upon Coles Myer Ltd (above) to illustrate the width of the word “transfer”. He also strove to give effect to the parties’ bargain. He said: “[32] Given the text of the Deed, the context, and the purpose of the transaction, including the agreement in the HOA that AP was to pay HCAM the royalty in perpetuity, the construction proposed by AP, AIPH and BBD is too narrow and pedantic. It would mean the parties intended to allow AP to give AIPH any or all of its rights under the AP Licence Agreement, without first offering HCAM a chance to acquire those rights, and AIPH would then be able to licence and authorise another person to use the relevant intellectual property to manufacture or distribute the product, free from the obligation to pay HCAM a royalty. This construction would render the Deed, as a whole, commercial nonsense. [33] Having regard to the Deed as a whole, its text, context and purpose, a reasonable businessperson in the position of the parties to the Deed would have understood the words ‘if AP wishes to … transfer, [or] assign … its right to manufacture or distribute the Product or both’ in the cl 6.3 covenant to include a circumstance where AP wished to give up the exclusive right to use the relevant intellectual property in its business and thereby permit AIPH to authorise and license others to use those rights. In this way, they would understand AP giving up its exclusive right to AIPH as a transfer or assignment by AP of its exclusive right to AIPH. This construction of the cl 6.3 covenant is practical. It gives effect to the purpose of the Deed, which was to formalise the settlement of the dispute by providing HCAM with a perpetual royalty on sales of the product by the only entity licensed to do so, and a right of first refusal in the event that AP wished to sell, transfer or assign its exclusive right to manufacture or distribute the product. [34] It follows that AP was bound by the cl 6.3 covenant to give HCAM a Product Transfer Notice before agreeing to the AP Licence Amendment. AP’s failure to do so was a breach of that covenant.” [48] I think that reasoning was correct. I would add that under the Royalty Deed it is AP, rather than AP and AIPH, which has an obligation to pay HCAM a royalty. In that respect the bargain was particularly vulnerable to AP dealing with its rights to make and sell the product. [49] In my view there was another reason to find that AP was in breach of cl 6.3 of the Royalty Deed. It is based upon the judge’s reasoning at [41]–[49] set out above, and in particular [43]. AP had an obligation to give a notice under cl 6.3 of the Royalty Deed if it wished to “sell, transfer, assign … its right to manufacture or distribute the Product …”. AP was a company. It could have no wishes except the wishes of its directors and shareholders. Immediately prior to the Licence Amendment Agreement, those persons did wish to transfer or assign the right to manufacture or distribute the product to BBD. The Licence Amendment Agreement was part of a two step process to achieve that aim. [50] I propose orders that: -- 14 of 15 -- 15 1. The appeal is dismissed with costs. 2. The cross-appeal is allowed: (a) the answer to question 1 is, “AP and AIPH breached cl 6.1 of the Deed by failing to give HCAM an IPR Transfer Notice once AIPH wished to enter into the BBD Licence Agreement and before it did so”. (b) the answer to question 2 is, “AP and AIPH were required to give HCAM an IPR Transfer Notice in accordance with cl 6.2 of the Deed once AIPH wished to enter the BBD Licence Agreement and before it did so”. [51] BODDICE JA: I agree with Dalton JA. [52] WILSON J: I agree with the reasons and orders of Dalton JA. -- 15 of 15 --