Contracts - Volumatic v Ideas for Life
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Intellectual Property Enterprise Court (Mr David Stone) Volumatic Ltd v Ideas for Life Ltd [2019] EWHC 2273 (IPEC) (29 Aug 2019)
This was a claim by Volumatic Ltd ("Volumatic") for specific performance of an agreement that was alleged to have neem entered by Ideas for Life Ltd. ("IFL") for the assignment of "all property rights" including certain patents in a banknote pouch for Volumatic's cash counting machines to be designed by IIFL. IFL resisted the claim on a number of grounds including whether the alleged agreement (referred to in the judgment as "the Agreement") was legally binding and, if it was, whether it could be specifically enforced.
At the case management conference, Judge Hacon had listed the following issues to be tried:
"1. Whether the Agreement (alternatively stages 2 and 3 of the Agreement) has contractual force and particularly:
(a) whether there was an intention to create legal relations;
(b) whether the terms are sufficiently certain.
2. Whether Volumatic is estopped by convention from asserting that the Agreement (alternatively stages 2 and 3 of the Agreement) is binding.
3. Whether the Agreement has been varied.
4. Whether on its proper construction the conditions precedent for the assignment of rights under the Agreement have been satisfied (including whether IFL is estopped from asserting otherwise).
5. Whether, if the conditions precedent were satisfied, Volumatic did so within a reasonable time.
6. Whether Volumatic has come to the court with clean hands by reason of:
a. it allegedly conducting its relationship with IFL as if the Agreement were not binding upon it;
b. alleged pre-contractual misrepresentations; and/or
c. its own failure to comply with its own obligations under the Agreement, (including whether IFL acquiesced to the same and/or whether IFL is estopped from asserting otherwise).
7. Whether it would be inequitable to order specific performance.
8. Whether IFL has a defence of laches.
9. Whether the claim is statute barred.
10. Whether the court should refuse specific performance on the discretionary grounds that:
a. IFL has allegedly conducted itself on the basis that Stages 2 and 3 of the Agreement were not binding;
b. IFL has improved the Pouch (as defined in the statements of case) at the request of Volumatic;
c. Volumatic has allegedly not complied with its own obligations under the Agreement; and/or
d. delay.
11. Whether IFL holds the intellectual property rights in the pouch on trust for Volumatic.
12. Whether the court should order specific performance of the Agreement.
13. Whether the court should order damages in lieu of specific performance.
14. The quantum of loss and damage suffered by Volumatic.
15. Whether IFL should be ordered to grant Volumatic exclusive rights to use any know-how in respect of the Pouch."
The action came on for trial before Mr David Stone sitting as an enterprise judge on 8 and 9 July 2019. He delivered judgment on 29 Aug 2019.
Mr Stone dismissed the claim for the reasons set out in paragraph [86] of his judgment:
"(a) The Agreement has no contractual force because Volumatic and IFL did not intend to create legal relations.
(b) If I am wrong in that, then the terms of the Agreement are sufficiently certain. They may have been varied by the conduct of the parties, but not so as to discharge the Agreement or to amend the requirement to assign the intellectual property. However, Volumatic is estopped by convention from asserting the Agreement.
(c) Properly construed, the only condition precedent for Stage 2 of the Agreement is the "mutual acknowledgement of the completion of [Sub-]Stage 4", which occurred in 2007/2008.
(d) Volumatic has not come to court with clean hands, by reason of its conducting its relationship with IFL as if the Agreement were not binding, and its failure to comply with its obligations under the Agreement.
(e) I reject IFL's submissions on pre-contractual misrepresentation.
(f) IFL has a defence of laches in relation to specific performance. I would also have refused specific performance on discretionary grounds and/or on grounds of inequity.
(g) Damages in lieu of specific performance do not arise, but any such claim is in any event statute barred.
(h) IFL does not hold the intellectual property in the Pouch on trust for Volumatic.
(i) Volumatic is not entitled to exclusive rights to use any know-how in respect of the Pouch."
Mr Stone dismissed the claim for the reasons set out in paragraph [86] of his judgment:
"(a) The Agreement has no contractual force because Volumatic and IFL did not intend to create legal relations.
(b) If I am wrong in that, then the terms of the Agreement are sufficiently certain. They may have been varied by the conduct of the parties, but not so as to discharge the Agreement or to amend the requirement to assign the intellectual property. However, Volumatic is estopped by convention from asserting the Agreement.
(c) Properly construed, the only condition precedent for Stage 2 of the Agreement is the "mutual acknowledgement of the completion of [Sub-]Stage 4", which occurred in 2007/2008.
(d) Volumatic has not come to court with clean hands, by reason of its conducting its relationship with IFL as if the Agreement were not binding, and its failure to comply with its obligations under the Agreement.
(e) I reject IFL's submissions on pre-contractual misrepresentation.
(f) IFL has a defence of laches in relation to specific performance. I would also have refused specific performance on discretionary grounds and/or on grounds of inequity.
(g) Damages in lieu of specific performance do not arise, but any such claim is in any event statute barred.
(h) IFL does not hold the intellectual property in the Pouch on trust for Volumatic.
(i) Volumatic is not entitled to exclusive rights to use any know-how in respect of the Pouch."
In reaching his decision, the learned deputy judge took into account the largely uncontroversial background facts set out in paragraph [10] of his judgment and the generally agreed legal principles listed in paragraph [11].
As the Agreement was an express, written, commercial document it was common ground that the burden on IFL to prove that it was not intended to create legal relations was a heavy one. The document had been prepared after a meeting between the parties to negotiate the terms of a contract and was followed by an email that contained the following paragraph:
"This represents a summary of the proposed agreement Рit will require legal input to finalise Рthis will be completed in April in order to delay the legal fee expenditure. In the meantime, DFL ([Mr Williams]) and Volumatic ([Mr Bonn̩]) will sign this letter/email hence agreeing the intent to go ahead in this form."
His Honour held at paragraph [24] that the parties did not intend the Agreement to be legally binding. It was a document designed to record the consensus reached at the meeting Although the document was signed, that was done, in Mr Stone's judgment, not to create legal relations, but for the purposes of recording the consensus. The signatures indicated the agreement of both sides that the document accurately expressed what was agreed in the meeting and that was recognized in the Agreement itself, where it recorded "It is recognised etc". In the judge's judgment, the Agreement amounted to no more than that. It was not intended to create legal relations and the heavy burden that IFL set out to prove had been met. Alternatively, having found that the Agreement merely recorded the consensus that had been achieved and that neither party had acted as though it had been bound by its terms, Mr Stone found at paragraph [39] that Volumatic would have been estopped by convention from asserting the Agreement.
Cases of this kind arise frequently. The best way to avoid them is to mark all correspondence, heads of terms, memornanda of understanding and so forth with the words "Subject to formal written agreement" or "contract". When agreement is reached on all terms, there should be a "whole agreement" clause, that is to say, a provision that the written instrument contains the whole terms of the agreement and neither party will rely on representations, warranties, statements of fact or opinion or anything else outside the agreement. Should amplification or clarification of this note be required, call me on 020 7404 5252 during office hours or send me a message through my contact form.
As the Agreement was an express, written, commercial document it was common ground that the burden on IFL to prove that it was not intended to create legal relations was a heavy one. The document had been prepared after a meeting between the parties to negotiate the terms of a contract and was followed by an email that contained the following paragraph:
"This represents a summary of the proposed agreement Рit will require legal input to finalise Рthis will be completed in April in order to delay the legal fee expenditure. In the meantime, DFL ([Mr Williams]) and Volumatic ([Mr Bonn̩]) will sign this letter/email hence agreeing the intent to go ahead in this form."
His Honour held at paragraph [24] that the parties did not intend the Agreement to be legally binding. It was a document designed to record the consensus reached at the meeting Although the document was signed, that was done, in Mr Stone's judgment, not to create legal relations, but for the purposes of recording the consensus. The signatures indicated the agreement of both sides that the document accurately expressed what was agreed in the meeting and that was recognized in the Agreement itself, where it recorded "It is recognised etc". In the judge's judgment, the Agreement amounted to no more than that. It was not intended to create legal relations and the heavy burden that IFL set out to prove had been met. Alternatively, having found that the Agreement merely recorded the consensus that had been achieved and that neither party had acted as though it had been bound by its terms, Mr Stone found at paragraph [39] that Volumatic would have been estopped by convention from asserting the Agreement.
Cases of this kind arise frequently. The best way to avoid them is to mark all correspondence, heads of terms, memornanda of understanding and so forth with the words "Subject to formal written agreement" or "contract". When agreement is reached on all terms, there should be a "whole agreement" clause, that is to say, a provision that the written instrument contains the whole terms of the agreement and neither party will rely on representations, warranties, statements of fact or opinion or anything else outside the agreement. Should amplification or clarification of this note be required, call me on 020 7404 5252 during office hours or send me a message through my contact form.
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