Mini-summary
The legal principles surrounding the construction of a contract, have followed well trammelled lines ever since Lord Neuberger set out his six criteria in Arnold v Britton [2015] UKSC 36, considered by Lord Hodge in Wood v Capita [2017] UKSC 24. Of these criteria, the two generally fought over the most are ‘the natural and ordinary meaning’ of words or phrases, and ‘the facts and circumstances’ relevant at the time.
In considering the extent of a specific burden on a party, the relevant factual matrix has now become a key battleground. This was explored in the case of Evans and anor v Joseph Joseph Ltd and anor [2022] EWHC 192 (Ch). Of particular interest, were the terms ‘best efforts’, ‘parties mutually agree’ and ‘beneficial’. Important too was the extent of the obligation on a party relating to renewals of designs.
What are the practical implications of this case?
It is doubtful there is any lawyer reading this, who has drafted a contract (most likely under client pressure to get it done), who has not wondered as time has passed whether the parties were going to fall out and his/her drafting was going to be picked apart and torn to shreds.
Like many things, words and phrases have something of a fashion cycle, and what was once prevalent and understood 20 years ago, may have long since been dropped from the contractual vocabulary by the time the parties being their dispute. Some words and phrases, however, do stand the test of time.
Although this case relates to design rights, the legal principles, and particularly the finding (in the factual matrix and context of this case) upon whom the burden of renewals is placed, is applicable across the board of IP rights. This is all the more so if there is any variation of the contract relating to ownership of the rights.
Also of interest is the impact on the original bargain entered into, of any variations. As the contract must be construed as at its date, any Deed of Variation will change that to the date the Deed is entered into. This means the court is obliged to reconsider the factual matrix at that point, and whether, therefore, any meaning has been altered as a result.
Finally, and a perennial issue, consideration was given to what reporting and accounting information JJL needed to provide Mr Evans with.
What was the background?
In 2007, Mr Evans, a designer of kitchen utensils licenced some of his designs to Joseph Joseph Ltd (‘JJL’), a producer and vendor of homeware goods (the ‘Original Agreement’). Registration of IP rights in new territories, would be in joint names.
Subsequently, in 2011, the parties entered into a Deed of Variation (the ‘Deed’). It amended a number of key provisions, in particular, that Mr Evans assigned all of his worldwide rights to JJL. The Deed included a warranty from JJL to make its ‘best efforts to protect and defend’ the rights, including registration of the designs in all territories ‘where the parties mutually agree it is beneficial’. If JJL did not wish to register Mr Evans could. Other provisions related to a licence back to Mr Evans, and importantly, a right to have the rights assigned to Mr Evans, in the event JJL did not wish to exploit the rights.
Mr Evans sought declarations from the court in relation to specific issues agreed between the parties relating to the meaning of the various words/phrases highlighted above, and particularly the burden of renewal. In considering the factual matrix/context, he argued a number of matters should be taken into consideration, including awareness of the importance of registrations to prevent counterfeiting, JJL being a substantial international business and experts in IP rights protection and relevant consideration of design law. The judge concluded that little of this was at all relevant.
A further declaration related to the royalty statements to be provided by JJL each quarter, and the extent of information which should accompany it.
What did the court decide?
The term ‘mutually agree’ did not impose any obligation to discuss, in good faith, where registration should occur. It regulated whether JJL would register a design. It was the first step before JJL notified Mr Evans they had no wish to register, whereupon he could.
As to ‘beneficial’ Mr Evans argued this meant there was a presumption in favour of registration; although JJL’s costs would be taken into consideration. The judge disagreed, and pointed out there were no evaluative criteria set out in order to determine what was or was not beneficial.
However, on the issue of what ‘best efforts’ meant (it was accepted as equating to ‘best endeavours’ a well understood term) in the context of renewals, JJL did have an obligation to renew. Use of the words ‘protect’ and ‘defend’ in context, required JJL to safeguard and preserve the rights. Allowing a right to lapse would not amount to protecting or defending it. In support of his conclusion, the judge pointed to the provision that if JJL did not wish to exploit the rights then Mr Evans could call for a transfer to him. Ceasing to renew, because there is no exploitation, would defeat that possibility, and that cannot be what the parties intended.
Mr Evans argued that the royalty statement information should be specific, and the use of JJL’s stock keeping unit identifier should be used. However, the relevant clause simply referred to the quantities of products sold, the Net Sales Value (a defined term) and the royalty payable. There was no obligation upon JJL to go further.
The judge made limited declarations, but not in the precise terms pleaded, which he considered too broad.
This article was first published by Lexis®PSL on 10 February 2022
