Armacel v Weyerhaeuser [2009] NSWSC 628

New South Wales Supreme Court

CITATION : Armacel v Weyerhaeuser [2009] NSWSC 628

HEARING DATE(S) : 12 June 2009 JURISDICTION : Equity Division Commercial List

JUDGMENT OF : McDougall J at 1

EX TEMPORE JUDGMENT DATE : 12 June 2009

DECISION : See paragraphs [44] to [48] of the judgment.

CATCHWORDS : CONTRACTS - breach of contract - whether contract validly terminated - whether appropriate to make a declaration that contract was validly terminated. - COSTS - 'reasonable legal costs and expenses' - whether appropriate to assess reasonableness of costs incurred on an interlocutory basis prior to final determination of the matter.

LEGISLATION CITED : Trade Practices Act 1974 (Commonwealth) Uniform Civil Procedure Rules

CATEGORY : Procedural and other rulings

PARTIES : Armacel Pty Limited (Plaintiff) Weyerhaeuser Company (Defendant)

FILE NUMBER(S) : SC 50219/08

COUNSEL : T A Alexis SC / A C Norrie (Plaintiff) D R Sibtain / S A Sirtes (Defendant)

SOLICITORS : Access Business Lawyers (Plaintiff) Phillips Ormonde Fitzpatrick Lawyers (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

McDOUGALL J

12 June 2009 (ex tempore - revised 12 June 2009)

50219/08 ARMACEL PTY LIMITED v WEYERHAEUSER COMPANY JUDGMENT 1 HIS HONOUR: On 27 February 2006 the plaintiff (Armacel) and the defendant (Weyerhaeuser) entered into a licence agreement. By that licence agreement, Armacel in effect licensed Weyerhaeuser to use certain "Equipment" to manufacture certain "Licensed Products", "Approved Products" and "Endorsed Products". 2 The licence agreement has come to an end. For reasons that I shall explain, it is appropriate to conclude that Armacel has validly terminated the licence agreement by reason of Weyerhaeuser's breach. 3 By clause 3 of the agreement, Weyerhaeuser agreed to pay a royalty. Reference to item 9 of the schedule indicates that the royalty was fixed as a percentage of the net sale price of licensed products. Reference to item 12 of the schedule indicates that there were minimum annual royalties of $75,000 (although with a "ratcheting" that is of no present relevance). 4 Clause 9 of the agreement required Weyerhaeuser to use commercially reasonable endeavours to commercialise and exploit the licensed technology and to manufacture, market and sell the licensed products. Clause 9 was cross-referenced to the "minimum performance criteria" in clause 10. 5 Clause 10 required Weyerhaeuser to sell sufficient licensed product to generate the royalty of $75,000 per year, to which I have referred. A failure to do so was a breach of the agreement, entitling Armacel to terminate the agreement in accordance with clause 16. 6 Clause 16 of the agreement dealt with termination. By clause 16.1.2, Armacel was entitled to terminate the agreement if Weyerhaeuser made default in payment of royalties or licence fees or other amounts, and did not remedy that default within fourteen days of notice. 7 The consequences of termination included that, by clause 17.1.3, Weyerhaeuser was liable to pay immediately to Armacel "all moneys due and payable including all unpaid Licence Fees up to the end of the Term". 8 Clause 22.3.3 of the agreement provided that, if a party was found by a court to be in breach, that party must pay to the other, on demand, "the amount of any reasonable legal costs and expenses incurred by the non-breaching party for the enforcement of its rights under this agreement". 9 It seems that, in about August 2008, Weyerhaeuser ceased to carry on the business, for the purposes of which it had entered into the licence agreement. 10 On 23 September 2008, Armacel gave written notice to Weyerhaeuser alleging breaches of three clauses of the agreement - clauses 9.1, 9.2 (which dealt with business plans) and 10.1. It required each of those breaches to be remedied. 11 The breaches were not remedied (it is unnecessary, for present purposes, to explore how some of those breaches could have been remedied). Accordingly, on 22 October 2008, Armacel gave Weyerhaeuser a notice of termination. 12 These proceedings are concerned with the consequences of the matters that I have briefly outlined. Armacel claims judgment for an amount in excess of US$1 million, which it says is the amount due to it under clause 17.1.3 of the licence agreement. It seeks damages in the alternative. Further, it seeks performance of confidentiality obligations, and related relief, and delivery up of intellectual property and other matters. 13 Armacel's statement of contentions contains allegations referring to the making of the licence agreement, its applicable law, and clauses 9, 10 and schedule 12 (and other clauses that are of no present relevance). It then alleges, by paragraph 8, service of the notice of breach to which I have referred. By paragraph 9 it alleges failure to remedy. 14 Against that background, paragraph 10 of the contentions reads as follows: "On 22 October 2008 and pursuant to article 16 of the licence agreement, the Plaintiff served a Notice of termination of the licence agreement and thereby terminated the licence agreement."