Case No. IP-2018-000182

43.I have found that the Agreement is not legally binding and that (if it is) Volumatic is estopped by convention from relying on it. However, if I am wrong in that, it is necessary to construe the Agreement in order to determine whether the conditions for the assignment of the intellectual property have been met. 44.The parties adopted different approaches. IFL submitted that prior to any assignment, there must be the “mutual acknowledgement” of Sub-Stage 4, plus Volumatic must complete its three obligations set out in Stage 2. To the contrary, Volumatic submitted that the only condition precedent was the “mutual acknowledgement”, which it said had occurred by conduct in late 2007/2008. 45.The legal principles to be applied were not in dispute, and were summarised by Popplewell J in Lukoil Asia Pacific Pte Ltd v Ocean Tankers (Pte) Ltd (“The Ocean Neptune”) [2018] EWHC 163 (Comm). I do not repeat them here. 46.I start with the meaning of “mutual acknowledgement of the completion of [Sub-]Stage 4”. IFL submitted that these words at the start of the clause relating to Stage 2 require the parties formally to acknowledge that Stage 1 has been completed and that they are willing to proceed to Stages 2 and 3. IFL said that this is the only interpretation which makes the Agreement workable – without a willingness to proceed (for example, to agree further documents, the quality assurance specification and the delivery schedules), then the mutual acknowledgment makes no sense. 47.Volumatic submitted that the words mean what they say – that is, that the parties acknowledge – expressly or by conduct – that Sub-Stage 4 has been completed. This Volumatic said, occurred in 2007/2008 when it started ordering Pouches in large volumes. 48.Applying the legal principles I have referred to above, it seems to me that the objective meaning of the language cannot be stretched to accommodate IFL’s construction. A reasonable person, with the background knowledge of the parties, would take “mutual acknowledgement of the completion of [Sub-]Stage 4” to mean just that – that the parties have created a prototype of the Pouch, and tested it successfully. IFL conceded that this mutual acknowledgement can happen by conduct, and I find that it did, in 2007/2008. There was some debate as to whether the correct date was 2007 or 2008 but both parties conceded that it does not matter for the purposes of this dispute. 49.I thus do not need to consider which construction is more consistent with business common sense, because I have found that IFL’s construction is not a possible competing construction. If I am wrong in that, I would have found that Volumatic’s construction is more consistent with business common sense. 50.IFL submitted that there is a further condition precedent to the assignment – the three matters Volumatic is required to perform under Stage 2 – a 10 year royalty payment, immediate payment of £20,000 and a 10 year exclusive manufacturing agreement. Volumatic said that it was only required to undertake these steps once the rights in the Pouch were assigned to it by IFL. 51.Here, in my judgment, both constructions are open to me on the objective meaning of the language. I do not accept Mr Popplewell’s submission that there is only one interpretation open to me: his. His argument was that the Agreement records the consensus of the Warwick Meeting; in Volumatic’s summary of that meeting, the £20,000 payment came first; this was within the background knowledge of the parties; therefore that is the only interpretation open to the Court. I disagree. Mr Johnson’s summary of 7 February 2005 was never signed by the parties. The Agreement was. It stretches too far the guidance in Lukoil to suggest that an earlier, unsigned document trumps the language of a later signed one. A reasonable person in the shoes of the parties could well have come to either construction, considering the contract as a whole. The question for me is therefore which of the two constructions is more consistent with business common sense. 52.In my judgment, Volumatic’s construction is more consistent with business common sense. Adopting the text of Stage 2 of the Agreement, following mutual acknowledgment, “IFL will assign”. That assignment is said to be “subject to a noted charge”, and the charge, not the assignment, is “based on” Volumatic’s “honouring the terms below”. Thus, the intellectual property is assigned and charged, and IFL may rely on the charge to enforce Volumatic’s compliance with the three requirements. If Volumatic fails to perform, then the charge bites. 53.IFL’s construction sits less well with the language of the Agreement, and with business common sense. If Volumatic is first required to provide a 10 year royalty payment, that would suggest that the intellectual property does not have to be assigned until the end of the 10 year period, as paragraph 1 will only have been complied with at that time. Alternatively, if Volumatic complied with paragraph 1 of Stage 2 by entering into a 10 year royalty agreement then IFL would have the benefit of the charge to enforce it – but that is not what the clause says. Similarly, DFL having the rights to exclusive manufacture for 10 years would not be known until the end of a 10 year period - the Agreement does not mandate a separate agreement. 54.Further, the charge over the intellectual property makes less sense on IFL’s construction. For example, if the requirement is that the £20,000 be paid prior to assignment, and the amount is paid, then the charge is not necessary to ensure that Volumatic “honour[s] the terms below in full”, as it will already have done so by making the payment. Any offset of the £20,000 against future royalty payments is to Volumatic’s benefit, not IFL’s, and so IFL does not require the charge to enforce any on-going “honouring” of that term. I accept, as Mr Popplewell submitted, that the charge helps to enforce the other two requirements, but, again, that is not what the Agreement says. 55.I am conscious that at least some of the individuals involved, including on Volumatic’s side, actually thought that IFL’s construction was correct – for example, Juliette Summerfield, a Volumatic employee, noted in an email “My take on the IP is that DFL will assign this to Volumatic upon receipt of £20,000 and a 10 year royalty agreement”. Similarly, Mr Amos set out the same understanding in his email of 22 November 2007. But, in my judgment, this is not how the Agreement would be interpreted by an objective observer with the knowledge of the parties, and so it does not matter what Ms Summerville or Mr Amos thought the Agreement meant, nor that Mr Williams did not “correct” them. 56.Therefore, in my judgment, Volumatic’s construction is to be preferred. The only condition precedent to Stage 2 was the mutual acknowledgement of the completion of Sub-Stage 4. This was done by conduct in late 2007/2008. Had the contract been binding, the obligation would then have arisen for IFL to assign “all property rights for [the P]ouch”, which it did not do. 57.IFL argues in the alternative that the obligation to assign was conditional on Volumatic’s being willing to comply with its obligations under Stages 2 and 3. I cannot see any justification for this submission on the language of the document or in the wider context. On the terms of the Agreement, following mutual acknowledgement (that is, conclusion of development and testing of the Pouch), IFL was obliged to assign the intellectual property in the Pouch. If Volumatic was unwilling to move forward with the immediate payment, royalties and exclusive manufacture, IFL’s remedy was through its charge over the transferred intellectual property. 58.If I am wrong in that, and the correct construction of the Agreement is that it was a condition precedent to the assignment that the three steps first be carried out by Volumatic, Volumatic conceded that the £20,000 “immediate” payment was never made. I do not accept Volumatic’s argument that payment of royalties adding up to £20,000 over the next several years in effect complied with the requirement. Nor do I accept that IFL needed to call for the payment, or that IFL is estopped from asserting that Volumatic has failed to provide immediate payment. If IFL’s construction of the condition precedent is correct, IFL was entitled to immediate payment on mutual acknowledgment. That payment having never been made, Volumatic would not have satisfied the conditions precedent, therefore there can be no obligation on IFL to transfer the intellectual property in the Pouch. Similarly, I do not accept that a 10 year relationship that, in the end, turned out to have been exclusive is the same as a 10 year exclusive manufacturing agreement: the latter would have given IFL certainty. In any event, Volumatic was very clear that it was not prepared to enter into a 10 year exclusive manufacturing agreement, then, later or now. I also do not accept Volumatic’s argument that, as IFL owned the relevant patents, it in effect had an exclusive agreement anyway, as any third party manufacturing the Pouch would have infringed the patents. There is a difference between enforcing an exclusive manufacturing agreement and enforcing a patent (not least because patents are not worldwide). In my judgment, there would have been value to IFL/DFL in an exclusive manufacturing agreement, which it never had.