Kason Kek-Gardner Ltd v Process Components Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lord Justice Kitchin,Lord Justice Floyd |
| Judgment Date | 14 December 2017 |
| Neutral Citation | [2017] EWCA Civ 2132 |
| Date | 14 December 2017 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2016/3722 |
[2017] EWCA Civ 2132
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE CHANCERY DIVISION
MRS JUSTICE PROUDMAN
HC-2016-000164
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Lewison
Lord Justice Kitchin
and
Lord Justice Floyd
Case No: A3/2016/3722
Mr Ian Mill QC & Mr Tom Cleaver (instructed by Paul Hastings (Europe) LLP) for the Appellant
Mr Michael Bloch QC, Mr Geoffrey Pritchard&Ms Georgina Messenger (instructed by Squire Patton Boggs) for the Defendant
Hearing dates: 5 th and 6 th December 2017
Judgment Approved
Before the end of June 2009 Kemutec Powder Technologies Ltd ("KPTL") operated in the field of powder processing and handling. That is a branch of technology used in industries such as food manufacturing, agro-chemicals, pharmaceuticals and powder coating. Its business consisted of four areas:
i) The manufacture and sale of complete machines, such as milling, grinding, sifting and mixing machines ("Unit Machines");
ii) The supply of a number of machines working together as part of an overall manufacturing line ("Systems" or "Packages");
iii) The manufacture and sale of specialist diaphragm valves ("Mucon"); and
iv) Spares, the precise scope of which I consider later. This part of the business was the most profitable part.
Most of KPTL's business was done under the brand names "KEK" and "Gardner". In relation to the former KPTL was the proprietor of a registered trademark (No 2506657). It also owned a number of other intellectual property rights ("IPR") relating to its business.
KPTL ran into financial difficulties in 2007 and by June 2009 those difficulties had become acute. On 12 June 2009 the board resolved that KPTL should enter administration, although it did not formally do so until 30 June. In preparation for its entry into administration the future administrators invited bids for KPTL's saleable assets. In the event, on 29 June 2009 the administrators accepted a bid for certain assets from Process Components Ltd ("PCL"), a new company formed by former directors of KPTL with the backing of KPTL's largest creditor, EPIC, and entered into a written sale contract with PCL on the following day ("the PCL agreement"). Nearly two weeks later, on 10 July 2009, the administrators entered into another sale agreement with Kason Kek-Gardner Ltd ("KGL"), another new company formed by those directors of KPTL who did not want to throw in their lot with PCL ("the KGL agreement").
By an agreement bearing the same date and operating from that date (but in fact executed some days later) PCL and KGL entered into a licence agreement under which PCL licensed KGL to use IPR that had formerly belonged to KPTL. That licence agreement contained contractual mechanisms for its termination.
The first issue on this appeal is whether under the terms of the KGL agreement KGL has acquired any (and if so what) IPR formerly belonging to KPTL. The answer to that issue depends at least in part on what IPR PCL acquired under the PCL agreement. The second issue is whether (on the assumption that KGL has acquired such rights) it is estopped from so asserting. The second issue does not arise if the first issue is decided against KGL. The third issue is whether PCL has validly terminated the licence agreement. There is a fourth issue, relating to the scope of the licence agreement. That issue is only live if the licence has not been terminated.
The PCL agreement is a tripartite agreement, the parties to which are (1) KPTL (2) PCL and (3) the administrators. It begins with some recitals of which recital (B) reads:
"The Seller has agreed to sell whatever right title and interest it may have in certain assets currently used in the Business…"
Clause 1 is a definitions clause. Relevant definitions include:
""Brand Names" KEK Centrifugal Sifters, KEK Conemills, KEK Universal Mills, KEK Kibblers, Gardner Mixers, Tourrelll Mixers, Mucon Iris Diaphragm Valves, Mucon Disc Valves, Mucon Bridge Breakers, Mucon Aerators, Mucon Rotalogs and Power Process Systems/PPS or any part of such Brand Names as are commonly used by the Seller in connection with inter alia the Business
"Business" The "Mucon" business and the "Spares" business carried on by the Seller at Completion (for the avoidance of doubt the Business does not include the "Unit Machine" or "Package" businesses carried on by the Seller);
"Intellectual Property Rights" the full benefit (subject to the obligations) of all patents, registered designs, the Trade Marks, service marks, copyrights, know-how, technical and/or research and development information, drawings, specifications, domain names, computer programs and all licences, rights to protection and applications for registration and rights to apply for registration relating to such matters used by the Seller in the Business on Completion
"Sale Assets" the Brand Names, the Commercial Information, the Contracts, the Equipment, the Goodwill, the Intellectual Property Rights, the Kemutec US Shares, the IT System, the Work in Progress and the Motor Vehicles
"Trade Marks" the registered trademarks 46553 KEK, 1113675 Mucon, 1113676 Mucon, 1113677 Mucon"
Neither the "Mucon business" nor the "Spares business" is expressly defined by the PCL agreement.
Clause 2 of the PCL agreement provides that on the terms of the agreement "and so that the Business is transferred as a going concern" PCL would purchase "whatever right, title and interest the Seller may have at [Completion] in the Sale Assets".
The KGL agreement is quadripartite. The parties were (1) KPTL (2) KGL (under a previous name) (3) the administrators and (4) four named directors of KGL as guarantors. It is in much the same format as the PCL agreement. It, too, begins with a series of recitals including:
"The Seller has agreed to sell whatever right title and interest it may have in certain assets previously used in the Business…"
Another recital acknowledged that the risk of good title not passing was that of the Buyer. Clause 1 of the KGL agreement also contains definitions of which the following are relevant:
""Business" The design and assembly parts of the Unit Machine and Systems business of [KPTL] but for the avoidance of doubt not the manufacturing business of [KPTL]
"Business Name Kemutec
"Goodwill" the customer list and goodwill of the Business together with such right as [KPTL] has to enable [KGL] to hold itself out as carrying on the Business in succession to [KPTL] including the right to use the Business Name
"Intellectual Property Rights" the full benefit (subject to the obligations) of all patents, registered designs, trade and service marks, copyrights, know-how, technical and/or research and development information, drawings, specifications, domain names, computer programs and all licences, rights to protection and applications for registration and rights to apply for registration relating to such matters used by [KPTL] in the Business on 30 June 2009"
The original argument for KGL was that since both agreements were made as part of the same administration, they must be read together. When this is done the obvious ways of giving effect to both of them are either (a) that PCL acquired the KPTL IPR for the purpose of the parts of the business that it bought and KGL acquired the same IPR for the purposes of those parts of the business that it bought; or (b) that PCL acquired the KPTL IPR relating to those parts of the business that it bought, namely the Mucon and Spares parts of the business, whereas KGL acquired the KPTL IPR relating to those parts of the business that it bought, namely the design and assembly parts of the Unit Machine and Systems parts of the business.
One question, then, is whether the two agreements can or should be read together. The KGL agreement was made some 10 days after the PCL agreement. The general rule is that the subsequent conduct of the parties to an agreement cannot affect the true interpretation of the agreement. Still less can subsequent conduct of strangers to the agreement. Where there are contemporaneous contracts made between the same parties, which form part of a single composite transaction between the same parties, then the several documents can be read together: Smith v Chadwick (1882) 20 Ch D 27, 62. That is not this case. Mr Mill QC did not contend otherwise, and did not suggest that the two agreements could be read together as what he called "a suite of documents".
His argument was that the factual background known to all relevant parties was that KPTL was in administration. PCL and the administrators also knew that certain assets were excluded from the sale under the PCL agreement. The excluded assets were the "Unit Machine" and "Package" businesses. The administrators had an obligation to realise all KPTL's assets for the best price they could; and it must have been obvious that to sell the Unit Machine and Package businesses without the IPR necessary to carry on those businesses would seriously depreciate their value. In those circumstances, it would be very surprising if the reasonable reader of the PCL agreement would have understood it to transfer to PCL IPR that went beyond that which was necessary for the businesses that it bought. Had that been the intention it would (and should) have been expressly stated in the agreement. In those circumstances the PCL agreement should be interpreted as limiting the transfer of IPR to PCL in either of the two manners I have summarised.
The correct approach to the interpretation of contracts has been most recently discussed by the Supreme Court in Wood v Capita Insurance Services Ltd [2017] UKSC 24; [2017] 2 WLR 1095. I will not attempt to summarise or paraphrase it. As...
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