The Victorian Court of Appeal decision of Apple and
Pear Australia Ltd v Pink Lady America LLC
VSCA 280 demonstrates the risks associated with failing to
clearly define intellectual property rights that are the subject of
The case also highlights the need for clarification by
the High Court on precisely when extrinsic material and surrounding
circumstances can be relied upon to interpret a written
In 2007, Apple and Pear Australia Ltd (APAL)
entered into an Option Deed with United States corporation, Pink
Lady America LLC (PLA).
Under the Option Deed, PLA agreed to grant to APAL an option to
acquire ownership of Pink Lady trade marks that PLA had applied for
in Chile. In exchange, APAL agreed to grant an exclusive licence
back to PLA to use those trade marks on a royalty-free basis on
apples traded between Chile and North America. The option was
ultimately exercised by APAL.
The Option Deed defined the specific trade marks the subject of
the deed in a schedule. However, at the time the agreement was
made, the parties had contemplated and discussed that a
"refreshed" trade mark would be registered by APAL at a
later point in time and would be adopted internationally for the
Pink Lady brand. Despite that trade mark not being specifically
referred to in the Option Deed, PLA claimed that the Option Deed
was intended to give it a licence in respect of the refreshed trade
In the first instance, Justice Croft held that the Option Deed
included the refreshed mark on the basis that both parties were
aware, at the time they entered into the Option Deed, that a
refreshed mark would later be adopted internationally for the Pink
Lady brand. His Honour considered that, without the refreshed trade
mark, the licence under the Option Deed would quickly become
The decision was overturned by the Victorian Court of Appeal.
The Court considered that, on a proper construction of the
contract, the Option Deed was limited to those trade marks listed
in the schedule to the deed. In the absence of ambiguity, the Court
could not consider pre-contractual negotiations between the parties
in relation to the refreshed trade mark.
AMBIGUITY AND EXTRINSIC EVIDENCE: THE DEBATE CONTINUES
The Court of Appeal acknowledged the ongoing debate on precisely
when extrinsic materials and surrounding circumstances can be
relied upon to interpret a contractual provision.
In particular, the Court highlighted that current authority is
unclear on whether surrounding circumstances can be considered not
only when a term is ambiguous, but also to determine whether a term
is ambiguous, or even in the absence of ambiguity entirely. The
Court commented that those issues need to be resolved by the High
The Victorian Court of Appeal held that, in the present case,
there was no ambiguity. Relevantly, the term 'Trade Marks'
was specifically defined as the pending trade marks described in
the schedule to the Option Deed. The schedule contained the exact
numerical identification of each trade mark application. The Court
considered this was 'quintessentially
The Court also found that, even if there was an ambiguity in the
Option Deed, or an ambiguity was not required before a court could
take into account surrounding circumstances, the surrounding
circumstances did not support the trial judge's construction.
Unfortunately, this makes the case less likely to be appealed to
the High Court for clarification on the use of extrinsic evidence
because, even if PLA could admit pre-contractual negotiation
evidence, it might nevertheless not succeed in an appeal.
The Court also noted that, while extrinsic evidence can be
relied upon to avoid futility, a literal construction of the Option
Deed did not lead to commercial absurdity or futility.
HAVE YOU CAPTURED THE WHOLE DEAL?
While we await clarification from the High Court on the
admissibility of extrinsic materials in the construction of
contracts, the clear message is that intellectual property licences
and agreements must be drafted clearly and comprehensively to take
into account all matters understood between the parties at the time
of execution. The Apple and Pear Australia decision
demonstrates that the Court will not come to the rescue if you fail
to do so.
1Apple and Pear Australia Ltd v Pink Lady
America LLC  VSCA 280 .
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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