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Powder-tools for construction and termination

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The Court of Appeal decision in Kason Kek-Gardner Limited (KKG) v Process Components Limited (PCL) covers, first, what extrinsic evidence is relevant to construction and, second, what limitations can be implied into a confidentiality undertaking?

PCL bought assets (including intellectual property) relating to certain businesses of Kemutec Powder Technologies, as Kemutec entered administration. Ten days later, KKG purported to buy assets (including intellectual property) relating to Kemutec’s other businesses. KKG argued that the two relevant purchase agreements should be read together and, consequently, construed so that the intellectual property was divided between PCL and KKG. This argument failed: the general rule is that subsequent conduct of the parties to an agreement cannot affect its true interpretation, much less the conduct of third parties. KKG argued all parties knew that Kemutec’s administrators were obliged to realise as much value as possible for Kemutec’s assets. Therefore, the true construction of the PCL purchase agreement should limit the intellectual property acquired by PCL to that necessary for its businesses. This interpretation, however, contradicted the text of the agreement and, following Arnold v Britton, reliance on commercial common sense and background should not devalue the language used. Therefore, KKG had not acquired the relevant intellectual property.

Following these transactions, the parties had entered into an intellectual property licence. PCL argued that in disclosing the licence to a potential purchaser, KKG had breached a confidentiality undertaking under the licence. The court confirmed that a breach of this undertaking was not capable of subsequent remedy, and therefore there was a prima facie contractual right to terminate. KKG argued that the absolute undertaking was qualified by an implied term permitting disclosure to bidders, advisers, etc. on confidential terms, because this was necessary to give business efficacy to the licence. The court disagreed: this might have been necessary for KKG’s own business purposes, but not for the PCL-KKG relationship.