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PACIFIC BRANDS ‘KING GEE' AND ‘STUBBIES' CASE – WHO HAS THE RIGHT TO DISTRIBUTE JOCKS AND SOCKS IN AUSTRALIA? BY ROSS BECROFT

This case involved problems that arose after Pacific Brands acquired Sara Lee's Australian operations where another company claimed that it retained the right to manufacture underwear and socks under these well known labels.

The Federal Court decided in this case that the other company, Underworks Pty Ltd, retained the right to manufacture and sell the relevant clothing despite Sara Lee having sold its business to Pacific Brands. It was Pacific Brand's argument that the rights to make and sell reverted to it when it acquired Sara Lee's operations. Underworks had a pre-existing licence agreement with Sara Lee to carry out these activities. Justice Finkelstein rejected this argument and determined that in the absence of a novation of the contract, it is not possible for Pacific Brands to assume all of these rights that had been licensed. A novation would involve the consent of the original parties to the contract and the new party that is seeking to be substituted in order for the new party to fully “step into the shoes” of an original party to a contract.

The Judge distinguished in a classical sense between the benefits of a contract under a contract which may be transferred without the consent of a third party, and certain rights that required such consent. Here, Pacific Brands wanted to terminate the licence given by Sara Lee to Underworks, but the Judge ruled that this right could not be transferred simply by Sara Lee transferring the licence to Pacific Brands.

This case is a timely reminder for traders operating under licensing arrangements or those involved in buying or selling a complimentary business to obtain appropriate legal advice about ensuring that the commercial rights that parties intend to transfer in fact go across!

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