PARTIES:	KEOUGH, Albert James

	AND

	FAVARO, Gino Ernesto

TITLE OF COURT:	SUPREME COURT OF THE NORTHERN TERRITORY

JURISDICTION:	SUPREME COURT EXERCISING TERRITORY JURISDICTION

FILE NO:	No 144 of 1995

DELIVERED:	Darwin 23 October 1996

HEARING DATES:	16 May 1996

JUDGMENT OF:	Martin CJ.

CATCHWORDS:

Appeal and New Trial - Appeal - General Principles - Excessive or
inadequate damages - Damages inadequate - Appeal from decision of Master on assessment of damages - Finding that appellant had not established any entitlement to damages - Question of damages for alleged breach by licensee does not arise as contract provides own remedy by way of variation to its primary terms - Upon assessment of damages there must be also evidence of the loss by which that damage can be quantified.

Damages - Measure and remoteness of damages in actions for breach of contract - Patent agreement - Appeal from decision of Master that appellant had not established any entitlement to damages - Question of damages for alleged breach by licensee does not arise as contract provides own remedy by way of variation to its primary terms.

Damages - Measure and remoteness of damages - Patent agreement - Appeal from decision of Master that appellant had not established any entitlement to damages - “best endeavours” clause - Upon assessment of damages there must be also evidence of the loss by which that damage can be quantified.

Transfield Pty Ltd v Arlo International Ltd (1979-80) 30 ALR 201, referred to.

Patents - Infringement and legal proceedings in respect thereof -
Appeal from decision of Master on assessment of damages in respect of a judgment that respondent had breached patent agreement - Finding that appellant had not established any entitlement to damages - No evidence of any loss suffered by the appellant sounding in damages.

REPRESENTATION:

Counsel:

Applicant: Mr A J Keough (in person)
Respondent: No appearance

Solicitors:

Applicant: Not represented (in person)
Respondent: Not represented

Judgment category classification: No Distribution
Judgment ID Number: mar96018
Number of pages: 10

mar96018

IN THE SUPREME COURT OF
THE NORTHERN TERRITORY
OF AUSTRALIA

No 144 of 1995

	BETWEEN

	ALBERT JAMES KEOUGH
			Appellant

	AND:

	GINO ERNESTO FAVARO
			Respondent

CORAM: MARTIN CJ.

REASONS FOR DECISION

(Delivered 23 October 1996)

	This is an appeal against a decision of the Master.

	The proceedings were commenced in August 1995 when the appellant sought an order that a certain action in the Local Court, in which he was plaintiff and the respondent was defendant, be transferred to this Court.  In those proceedings the appellant sought an injunction arising from sundry alleged breaches by the respondent in relation to an agreement between them in respect of a patent held by the appellant.  That application was dismissed by that Court on 4 August 1995, and these proceedings were commenced on 10 August.  Neither party has been represented at any stage of the proceedings here or below.  

	When the summons on the Originating Motion was dealt with by the Master, he noted undertakings by the respondent that he would not infringe certain patents and dismissed the appellant’s application that the Local Court proceedings be transferred.  On 5 October 1995 his Honour Justice Mildren ordered that the Master’s order be set aside.  That appears to have been done by his Honour with a view to making the way clear for the real issues between the parties to be defined and properly litigated in this jurisdiction (r1.10 Supreme Court Rules (NT)).  Leaving aside procedural matters and interlocutory relief, the orders made by his Honour made it clear that the appellant’s claim against the respondent was for:

(a)	damages for breach of contract;
(b)	damages for negligence;
(c)	damages for breach of s52 of the Trade Practices Act 1974 (Cth); and
(d)	injunctive relief relating to the agreement between the parties regarding the patent.
	Although much of the material on the Court records filed by the appellant is difficult to comprehend, he obtained interlocutory judgment in default of defence and an order for damages to be assessed was duly authenticated by the Registrar.

	The proceedings for the assessment of damages were before the Master.  In his reasons the Master recalled that the respondent appeared at the hearing, and that upon hearing the appellant explain his claim, the respondent did not oppose the proceedings continuing as an assessment.  Having heard both parties the Master held that the plaintiff had not established any entitlement to damages.  The appeal from that finding is by way of rehearing de novo (r77.05).  The respondent did not appear.  As to evidence, the appellant relied upon the material before the Master, comprising sundry documents, and also sought to rely upon some further documents which he considered to be relevant.  It would seem that there is no inhibition on a Judge hearing an appeal receiving admissible documents which were not before the Master (r77.05(7)).

	As I understand it, the gist of the appellant’s claim is for damages for a breach of a written contract made on 28 August 1991 between himself as licensor and the respondent as licensee.  The recitals to that agreement show that the licensor is the holder of certain patents; the licensee desired to manufacture the product described in the patent and sought a licence to use the patent and trade secrets for that purpose.  In consideration of payment of a royalty, the appellant granted to the respondent an exclusive licence, to operate throughout the world for the duration of the patents to enjoy, commercialise and exploit the patents and trade secrets and to manufacture, have manufactured, use, market and sell the product.

	The dispute arises in relation to the interpretation of various provisions of the agreement.  However, reference should also be made to another written agreement between the same parties of 2 August 1991 which would appear from the evidence as being regarded by both parties as ancillary to the licence agreement of 28 August.  This earlier agreement provided for certain information to be given by the appellant to the respondent, for rights to exploit the information by the respondent for a limited period for a consideration of $20000 payable over a period of time, upon terms defined therein.  On the information before this Court, it would appear that the appellant has obtained a judgment against the respondent in the Local Court for $14500 under that agreement.  

	The patent licence agreement of 28 August is detailed and would appear to be in a form appropriate to the subject matter.  The appellant as licensor grants to the respondent as licensee an exclusive licence as hereinbefore described, together with the rights to grant sub-licences of any of those rights provided the respondent obtains the written consent of the appellant.  In consideration of the licences granted, it is required that the respondent pay royalty to the appellant.  “Royalty” means eight per cent of the net sales price of the product (“net sales price” being also defined) and provision is made for computation of it.  The dispute between these parties arises from cl4 and cl8 of that agreement.  Under cl4, the respondent was to manufacture and sell sufficient products to cause the amount of royalty remitted to the appellant to equal or exceed $5000 per annum during the term of the agreement.  It goes on to provide in subcl(2):

“In the event the licensee by itself or its sub-licensees does not in two (2) successive years remit sufficient royalty to equal the amount set down in Schedule 2 in respect of those years, then on the last date when a royalty payment was due under this agreement in respect of those years the grant in cl 2(1) shall automatically revert to a non-exclusive licence.  In the event that the grant in Cl. 2(1) reverts to the licensor pursuant to this clause the licensor covenants and agrees to pay to the licensee for a period of five (5) years from the date that the grant reverts to the licensor sixty per centum of any royalties received by the licensee from sales to persons corporations or other entities introduced to the product by the licensee during the term of this agreement”.

	The agreement goes on to provide, however, that subcl(2) was not intended to guarantee a minimum royalty to the licensor, but rather to guarantee a minimum performance by the licensee and its sub-licensees and therefore the licensor would not permit the licensee itself or by its sub-licensees to pay to the licensor the sum of $5000 per annum in respect of any year unless there has been sufficient sales of the product to support the payment of that amount as royalty under the agreement.
	Reference should also be made to cl8 of the agreement which provides that:

“The licensee at its expense shall use its best endeavours to commercialise and exploit the patents, trade secrets, licensor’s improvements and to manufacture, have manufactured, use, market and sell the products or to appoint sub-licensees for the purpose of such commercialisation and exploitation.”

	One of the documents not before the Master, but put forward by the appellant in these proceedings, is a letter from the respondent to the appellant upon which the appellant has noted in his own hand:

“Please note ref. in Licence Agreement No 9112637 ... under minimum performance: Ref Clause 4 subsection (2) where it reads two (2) years, by reason of dispensation granted to be amended to four (4) years from date of Agreement.  Please endorse.”

	There appear to be signatures adjacent to that handwriting of both the appellant and the respondent.  The effect of that variation of the contract is that the period of two successive years referred to in subcl(2) of cl4 referred to above, was to be read as meaning four successive years.  Thus for the consideration disclosed in the letter, the appellant agreed to a variation of the agreement of 28 August 1991 whereby the automatic reversion of the licence to a non-exclusive licence would occur after there had been four successive years in which the licensee (respondent) had not remitted the prescribed royalty so that at the expiry of that period the licence granted by the agreement automatically reverts to a non-exclusive licence.  The clause relating to the exclusivity of the licence, therefore, could not become operable until four years from 28 August 1991.  The contract thus provides its own remedy by way of a variation to its primary terms in the event that the licensee does not fulfil the requirements of cl4(2).  The result is that in default on the part of the licensee in relation to the sale of the product to cause the royalty to amount to the prescribed sum for four successive years, he loses the exclusivity of the license and the licensor (appellant) is enabled to grant other licences for the commercialisation and exploitation of the patents.  

	The question of damages for any alleged breach on the part of the licensee by failure to sell sufficient product to produce the required amount to meet the royalty commitment, does not therefore arise.  In lieu of damages he loses the exclusive licence, and the agreement acknowledges that by other provisions governing the situation should other licences be granted. 

	That this is the correct approach to the matter is demonstrated by subcl(3) of cl4 which provides that cl4 is not intended to guarantee a minimum royalty to the licensor, but rather to guarantee a minimum performance by the licensee (see above in relation to the balance of subcl(3)).

	There are elements in the appellant’s claim and submission which would indicate that he also sought to rely upon an alleged failure of the respondent to use its best endeavours to commercialise and exploit the patents and so on as provided for in cl8 of the agreement set out above.  Assuming, for these purposes, that the interlocutory judgment established that the respondent had so failed, there yet remains the question of proof of damages for that failure.  In the words of Murphy J. in Transfield Pty Ltd v Arlo International Ltd (1979-80) 30 ALR 201 at 216 a “best endeavours” clause:

“prescribes a standard of endeavour which is measured by what is reasonable in the circumstances, having regard to the nature, capacity, qualifications and responsibilities of the licensee viewed in the light of the particular contract”.

		Upon assessment of damages, there must be evidence of the loss by which that damage can be quantified.  There is no such evidence in this appeal.  With respect to the appellant, his argument, sometimes difficult to follow, seemed to proceed upon the basis that since there had not been payment of royalty there had not been an exercise of best endeavours to commercialise and exploit the patents, and thus damages by way of the unpaid royalty flowed.  That proposition does not avail the appellant.  A breach of cl8 could amount to a breach of the agreement independent of the failure to pay the minimum royalty prescribed.  Here, there was no evidence that the respondent had failed to use his best endeavours towards the objectives set out in cl8 and certainly no evidence of loss to the appellant should such a breach be established.  It follows that the appellant has failed to establish that he has suffered any damage in relation to the alleged breaches of the terms of the agreement.  Although he has a judgment which finds that there had been breaches on the part of the respondent, he has not been able to demonstrate that he suffered any loss arising from them.  

	Likewise in respect of the claim based upon the alleged breach of the Trade Practices Act.  Assuming, as the judgment obtained might show, that there had been proscribed conduct on the part of the respondent, the appellant has failed to show that he suffered any loss.  The respondent appears to have based his claim upon the assessment of damages upon erroneous premise, that is, that the respondent was to pay him not less that $5000 a year during the term of the patent licence agreement.  The terms of the agreement demonstrate that this is not the case.

	The appellant appeared to argue that in addition to general damages he was also entitled to recover his costs in developing, marketing and registering the patent, but the licence agreement governs relationships between him and the respondent after all that had been done, and contains no provision for reclamation or reimbursement of those direct costs.  The appellant also addressed argument which appeared to be directed to the questions of interest on the Local Court judgment, but that is a matter within the jurisdiction of the Local Court to be dealt with there.

	An argument was also raised based upon loss of opportunity to invest monies which would have been payable by way of damages applying, as I understood it, principles which the appellant derived from Hungerford and Others v Walker and Others (1990-91) 171 CLR 125, but since there has been no loss demonstrated, that claim must also fail.

	The appellant has failed to establish that he has suffered any loss sounding in damages arising from the breaches which he alleged led to the default judgment, and his claims in that regard are dismissed.  Judgment for the respondent.

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