Process Components Ltd v Kason Kek-Gardner Ltd

A contract for the sale of business assets must ordinarily be construed from its language, read as a whole, in its factual and commercial context. Subjective common assumptions cannot displace the contractual wording except in the exceptional circumstances recognised by the authorities.

Where parties expressly agree that a breach is a non-remediable material breach, the innocent party may terminate immediately. A licensee who has acted for years on the basis that a licence is valid may be estopped from disputing the licensor’s title or the licence’s validity where resiling would be unfair or unconscionable.

The claimant and defendant disputed ownership of intellectual property used in industrial powder-processing machines and the effect of two 2009 asset-sale agreements. The claimant contended that it had acquired all relevant intellectual property and had licensed the defendant to assemble and sell the machines. The defendant argued that it had acquired the necessary rights itself and that the licence was void or ineffective.

The claimant also challenged the defendant’s disclosure of the licence to its purchaser, relied on contractual termination provisions, and sought relief based on rectification and estoppel. The principal issues were construction of the sale agreements, the scope and termination of the licence, and whether the defendant was estopped from denying the claimant’s ownership.

1. Construction of the sale agreements. The PCL Sale Agreement did not transfer all KPTL’s intellectual property. Applying the contractual language as a whole, the relevant intellectual property was limited to that used in the Mucon and Spares business. Test data, user manuals and general assembly drawings used only in the Unit Machines business therefore remained available for transfer under the KGL Sale Agreement. The court rejected reliance on a subjective common assumption that all intellectual property would belong to PCL.
2. Meaning of Spares. “Spares” was not confined to low-value consumables kept in reserve. In context it included replacement parts and associated services covered by the claimant’s case. The defendant was not licensed to sell spares under the Licence Agreement.
3. Termination. The confidentiality provision was either a contractual condition or an innominate term whose breach justified immediate termination under the express wording of clause 11.2. Disclosure of the Licence Agreement to Kason constituted a material breach and, independently, a repudiatory breach. The claimant’s termination on 2 October 2015 was valid.
4. Rectification and estoppel. Rectification was unavailable because the parties to the PCL Sale Agreement were not before the court and no appropriate witness could establish PCL’s relevant intention at the time of contracting. Nevertheless, the defendant had shared and acted upon the assumption that PCL owned the relevant intellectual property and required a licence. It was permanently estopped from denying PCL’s ownership or the termination of the Licence Agreement.
5. The defendant retained rights in improvements it created under the Licence Agreement. The royalty-free licence to use “KEK-Gardner” in the corporate name lasted only for the term of the Licence Agreement and ended on termination.