QRS Sciences Ltd v BTG International Ltd

In this judgment I will refer to the claimant as "QRS" and to the defendant as "BTG".

The case arises in connection with a subclause, clause 14.4 in an agreement between the two parties dated 27th September 2002. BTG is an English company, the essence of whose business is the acquisition and exploitation of intellectual property and technology rights, especially patents. By the agreement of 27th September 2002 it granted to QRS (an Australian company which was then called Thorlock International Limited) an exclusive licence of a large portfolio of patents subsisting in many different countries. They all related to a particular type of technology known as nuclear quadrapole resonance technology, which has applications for the detection of explosives and for related uses. Clause 14.4 gave to QRS rights, the nature of which is in dispute in this case, to have an assignment of the patents offered to it in certain circumstances.

In March 2004 BTG informed QRS, its exclusive licensee from some 18 months earlier, that it was in negotiation to sell or assign the patents by way of a commercial transaction with a third party. The issues in this case arose in consequence. It appears to me that four main questions arise. In outline the questions and my answers to them are as follows:

The portfolio included 77 patents or patent applications for 14 inventions. There were patents or applications in a significant number of different countries. The exclusive Licence Agreement of 27th September 2002 was preceded, as one would expect, by quite lengthy and detailed negotiations. Mostly the negotiations were conducted by exchanges of emails, telexes, letters, telephone conversations, and the like, but there was one occasion in July 2002 when two persons from BTG travelled to Perth, Western Australia, for two days of meetings. The two persons were Dr. Cole, who has a scientific background and holds a senior position within BTG, and Mr. Ali, who is a barrister and at the time was a member of BTG's in-house legal department. I shall have to say a little about the meetings in Perth in July 2002 at a later stage in this judgment. The negotiations also included, among of course a great many other matters, an exchange of certain draft subclauses in September 2002. One of the drafts became the critical clause 14.4, and I shall also have to expand on this later.

The agreement was entered into on 27th September 2002; including schedules, it occupies 25 pages of small single-space print. The core of it is the grant of an exclusive licence of the patent portfolio by BTG to QRS. There are provisions for royalties, sublicences, and the like. There are also provisions about improvements to the patents in so far as improvements come into existence while the licence remains in force. As regards termination, QRS, the licensee, can terminate the licence on six months' notice. BTG can only give notice of termination in limited circumstances such as non payment of royalties by QRS or QRS entering into some form of insolvency procedure. There are various other provisions dealing with detailed matters, and one of them is clause 14.4, which I now read:

At some time in 2004, which I do not think I know exactly, BTG became involved in negotiations with a third party company, a United States corporation called InVision Technologies Inc. There was a confidentiality agreement which for some time precluded BTG from telling QRS, or anyone else, about the negotiations. However, on 5th or 6th March 2004, Mr. Kshatri of BTG was able to telephone Mr. Russeth, the Chief Executive Officer of QRS, to tell him that BTG was in negotiation with InVision and to arrange a meeting.

The first meeting took place on 10th March 2004 at a New York hotel. All those involved were in the United States at the time. Present were Mr. Kshatri, Mr. Lando, and Mr. Donofrio of BTG, and Mr. Russeth and Mr. Nulsen of QRS. At the meeting the BTG representatives handed to Mr. Russeth and Mr. Nulsen a letter dated 10th March 2004 which offered to assign BTG's patents and patent applications (being only those patents and patent applications which were the subject of the licence) to QRS for a substantial specified sum plus a royalty. The offer was to remain open until 19th March, which did not give QRS much time.

Three other features of the letter are, in my view, important. First, it contained this sentence:

“BTG's offer is made in accordance with and completely discharges BTG's obligations under Section 14.4 of that certain Licence Agreement, dated 27th September 2002, between BTG and Thorlock International Limited (now known as QR Sciences Limited)."

Mr. Russeth and Mr. Nulsen were greatly concerned by this turn of events. InVision was a major competitor of QRS, and Mr. Russeth and Mr. Nulsen viewed with alarm the prospect of InVision becoming the owner of patents which QRS was using or proposing to use, and of the probable loss of confidentiality which might follow. They were also taken aback by the short period, only nine days, which BTG's letter gave for the offer to be accepted. On the evidence I find that it did not occur to them at that stage that there was anything objectionable in the letter being headed "Subject to Contract" and having the words which I have quoted in the box at the end.

QRS did not accept or reject the "offer" at that stage. Instead the matter was revisited at a further meeting six days later on 16th March 2004. By that time most of the persons concerned were in England, and the meeting took place at BTG's offices in London. QRS had by then instructed English solicitors, Tarlo Lyons. The BTG representatives at the meeting were Mr. Kshatri, Mr. Lando, Dr. Cole, and Miss Georgiou, the head of BTG's in-house legal department. The QRS representatives were Mr. Russeth, Mr. Nulsen, and two partners in Tarlo Lyons, Mr. Wilson and Mr. Stokes. I might mention in passing that Mr. Ali was not present at the meeting. I believe that by then he had left BTG. He now lives and works in Saudi Arabia.

The meeting appears to have begun in a somewhat confrontational manner, with Mr. Wilson, on behalf of QRS, complaining that the period of nine days, which the 10th March letter allowed for BTG to accept or decline the offer, was so inadequate that the offer could be regarded as a sham. This did not go down well with the BTG representatives. However, after a period in which each side considered its position privately, things simmered down. In the result, BTG withdrew the letter of 10th March 2004, which it had handed over at the previous meeting in New York. Its representatives said that they would go away and "recalibrate" the terms which they would propose; they would then make a new recalibrated offer to QRS, and this time they would allow 60 days for acceptance. There was also discussion of the need to have "milestones" during the 60 days. I understand "milestones" to mean stages in negotiations which needed to be reached as the entire 60 days period progressed; otherwise the 60 days period would be cut short.

There are two specific findings which I should make about the meeting. They identify two matters which were not discussed at it. First, BTG was proceeding on the basis that, before it could conclude an agreement with InVision to sell the portfolio to InVision, it needed to comply with clause 14.4 of the Licence Agreement between itself and QRS. BTG argues now that on the true construction of the subclause the proposed sale to InVision did not trigger QRS's rights under clause 14.4, but it had not said that on 10th March and it did not say it on 16th March. Second, the QRS representatives did not say anything to the effect that the "Subject to Contract" heading of the 10th March offer and the words in the box at the end meant that, however long or short a time limit for acceptance was stated, the letter was incapable of being a compliance with any obligation which BTG had under clause 14.4. QRS is saying that now, and as I have indicated in the overview I agree with QRS, but QRS was not saying it at the meting on 16th March 2004.

In the days after the meeting on 16th March 2004 there was some correspondence between the parties about precisely what had and what had not been agreed at the meeting. The differing views which they had have been canvassed in the hearing before me, but in my view I need not go into them.

On 9th April 2004 Mr. Donofrio of BTG, based at premises in the United States, sent an email to Mr. Russeth, who by then was, I think, back in Perth, Western Australia. There were attachments to the email. The important one was a letter dated 8th April 2004 signed by Mr. Lando, the Chief Operating Officer of BTG. It contained what I understand to be BTG's recalibrated offer to sell or assign the patent portfolio to QRS. The letter was more detailed than its predecessor of 10th March 2004, and the commercial terms were significantly different and less favourable to QRS. However, I do not need to evaluate the terms. It is, though, relevant for me to record the following points about the letter.

There were then two letters between the solicitors to the parties. Tarlo Lyons for QRS complained about some aspects of BTG's offer letter. They specifically made the point, which had not been made before but is now a major issue in this case, that the various provisions in the letter which meant that it could not be accepted so as immediately to create a binding contract prevented it from complying with clause 14.4. They also said that, despite the 60 days period, there was still not a reasonable time for acceptance because QRS was allowed only 10 days within which to confirm in writing that it wished to proceed under the financial and other terms set out in BTG's letter. They warned that QRS was considering commencing proceedings, as in the event it has done. BTG's solicitors replied on 19th April 2004. They said that a further reply would be sent later, which, however, was in the event overtaken by these proceedings. They added that in any event BTG would not assign the patents to a third party before the expiry of the 60 days.

Apart from the two letters which I have mentioned in the previous paragraph, there were as far as I can see no further exchanges between the parties before the commencement of this action. The action was begun by QRS by a claim form dated 20th April 2004. The relief claimed, after an amendment to the Particulars of Claim to include an argument based not just on clause 14.4 of the Licence Agreement but also on an allegation that a further binding agreement was reached at the meeting on 16th March 2004, is as follows:

Mr. Saini, who appeared for BTG, said in the course of his address that the parties wished to obtain, not just a narrow decision on whether I will or will not make the specific order sought by the Particulars of Claim, but more general guidance on their rights and obligations under clause 14.4. Mr. Jones, who appeared for QRS, made no comment on that. I will endeavour to provide such assistance as I can.

I have already quoted clause 14.4, but it is convenient to read its terms again:

The disputed construction issue turns on the words early in subclause 14.4, "prior to abandoning any of the Patents which are issued, or any of the Patents at the application stage (other than a superseded application)......" In my judgment, which I think is the common view of everyone in this case, it is sufficient for any discussion of clause 14.4 simply to focus on the words "prior to abandoning any of the Patents". The other words which I have read out do not add anything of substance. In the interests of brevity, I will therefore refer only to the words "prior to abandoning any of the Patents", or to the concept which those words embrace. Later in subclause 14.4, the obligation imposed on BTG by the final part of the subclause is that it "will not ... assign, withdraw, abandon or cause [or] allow to lapse any Patent without first offering to assign such Patent to the Licensee." BTG's case is that that obligation only arises in circumstances where it, BTG, is otherwise intending or contemplating an abandonment of the patents. I should mention that the word "abandon" is not a term of art in patent law, but I am told that it has a generally understood and accepted commercial meaning.

In this case, BTG was contemplating assigning the patents to InVision. It is accepted by QRS that that transaction would not have amounted to BTG "abandoning" the patents within the meaning of that word in the phrase "prior to abandoning any of the Patents", et cetera, at the beginning of clause 14.4. BTG says that, therefore, its obligation under the later part of the subclause never arose. QRS, on the other hand, says that the obligation did arise: the words "prior to abandoning any of the Patents" would always be satisfied in the case of any patent which still existed at any particular time. The words mean no more than "at any time when any of the patents, not having been abandoned, is still in existence."

As a pure matter of construction, I agree with BTG. I acknowledge, as does Mr. Saini on behalf of BTG, that the construction which I believe to be correct appears not to have occurred to Mr. Donofrio of BTG when he wrote the letter of 10th March 2004. That letter, it will be recalled, says: "BTG's offer is made in accordance with ... section 14.4 of that existing Licence Agreement ..." Thus the letter assumed that BTG, by reason of its negotiations to sell the patents to InVision, did have obligations to QRS under clause 14.4. BTG's argument now is that Mr. Donofrio was mistaken because the sale of the patents to InVision would not have constituted an abandonment of them, and because BTG was not contemplating doing anything else which would have constituted an abandonment.

To keep a patent or a patent application in force can be quite expensive to the owner. If the owner allows a patent to lapse, for example by not paying renewal fees, that can be very damaging to a licensee, but as between the parties to a patent licence on the one hand and a national patent office on the other the licensee has no standing to maintain the patent in force. It therefore makes considerable sense for a licensee to be protected by a clause under which, if the licensor is otherwise going to abandon the patent, the licensor has to give to the licensee the chance to buy it and thereby to prevent it lapsing. BTG's present argument is that that situation, and that situation only, is what clause 14.4 covered.

As a matter of construction, I agree with BTG's argument. It seems to me that there are three main points to be made:

I therefore consider that, apart from the rectification argument, to which I come next, clause 14.4 would not have the effect which QRS contends that it has, and that QRS’s claim would, therefore, fail.

In QRS's pleadings it contends that if, as a matter of construction, clause 14.4 provided that BTG had to offer to assign a patent to QRS only in circumstances where it (BTG) was proposing to abandon the patent, then that was a mistake, that the subclause was intended to apply at all times during the continuance of the licence from BTG to QRS, and that the subclause should be rectified so as to have that meaning. The wording of the proposed rectification is the addition to the end of clause 14.4 of the following words:

The reamended pleading contends for rectification both on the grounds of mutual mistake and on the grounds of a unilateral mistake by QRS alone. The claim for rectification on grounds of mutual mistake could only succeed if both QRS and BTG had intended the subclause to apply at all times and not just at a time when BTG was proposing to abandon the patents, or some of them. However, BTG's evidence from Mr. Ali, the in-house lawyer, was that it specifically intended to limit clause 14.4 to circumstances where abandonment of the patents, or some of them, was contemplated. QRS's pleaded claim for rectification on grounds of mutual mistake was not pursued before me, and the argument proceeded solely on whether rectification for unilateral mistake by QRS alone (the mistake not being shared by BTG) was available.

Rectification for unilateral mistake is an exceptional remedy. In general, if a party to an agreement believed that it meant one thing when it actually meant something else, the court will not rectify the agreement so as to make it mean what the party had mistakenly thought it meant. All the more so is the court inclined to refuse rectification and to leave a party to live with the consequences of its own mistake if it had its own legal advice when it negotiated and entered into the agreement. However, it may be different if the responsibility for the one party's mistake lay fairly and squarely with the other party. In what I have just said in that last sentence, I have put the matter in very broad terms, and the way in which I have expressed it could not be, and is not intended to be, a working summary of the law. It simply indicates in a general way the sort of situation where rectification for unilateral mistake may be a possibility. Several important authorities have explored the precise conditions which need to be present before a claim for rectification by reason of unilateral mistake can succeed. Most recently, the subject has been reviewed in detail in the judgments of the members of the Court of Appeal in George Wimpey UK Limited v VI Components Limited [2005] EWCA Civ 77.

I do not think that the law either needs or wants a contribution from me about the principles which regulate the availability or non-availability of rectification for unilateral mistake. Accordingly, I simply state that I take the principles to be those explained in the Wimpey case itself and in the other cases referred to in the judgments in that case. I will move on to indicate how I believe those principles apply to the facts of this case.

In order to do that, I need to spend some time dealing with aspects of the facts. In my view, the rectification issue turns ultimately on an exchange of email messages on 23rd September 2002, only four days before the agreement was actually concluded. However, there are some earlier stages to which I need to make reference.

Negotiations between BTG and QRS about the grant of a licence of the patents portfolio seem to have begun in January 2002. For present purposes the first specific event which I need to record was the visit to Perth of Dr. Cole and Mr. Ali for two days of meetings on 11th and 12th July 2002. The meetings were mainly concerned with matters other than the ones related to the issues in this case. However, there was some evidence, not all of which was to the same effect, about whether there was or was not a discussion of what the position would be if BTG in future wished to dispose of the patents. In particular, could QRS in such a case have a right, in the nature of a right of first refusal or of first offer, to acquire the patents?

Mr. Ali, the lawyer representing BTG, said that, as he recalled, there was a brief discussion of that topic for no more than two minutes. When the QRS representatives raised the question, Mr. Ali's evidence is that he said that it was "an absolute no-no", and that BTG would never agree. Dr. Cole did not remember this one way or the other. The QRS representatives at the meeting, subject to one reservation, say that the matter did not come up, and that Mr. Ali did not say that BTG would never agree to a right of first refusal.

Two of the persons present for QRS were Miss Faulkner, an intellectual property partner in QRS's solicitors, and Mr. Krouzecky, a partner in the firm of patent attorneys instructed by QRS. They do not recall the topic arising and they add that, if it had arisen, it would have been of sufficient importance for them to have remembered it and to have made a note of it. Miss Faulkner took 22 pages of closely written manuscript notes of the two days of meetings. Mr. Krouzecky took rather briefer notes. None of the notes refer to this topic. Mr. Orr, QRS's company secretary, was present and he does not remember the topic arising. Mr. Russeth was there for some of the time. He does have a vague recollection of it being mentioned in passing, probably not in one of the formal meeting sessions. He is confident that the concept of a right of first refusal, in so far as it was mentioned, was not rejected by BTG. If it had been rejected, he would certainly have remembered.

I can accept that at some time in Perth there may have been a mention of the concept of a right of first refusal, but I do not believe that Mr. Ali is correct in his recollection that he firmly and definitively ruled it out. Mr. Krouzecky, in particular, was strong in his evidence that any exclusive licensee would want a right of first refusal if the licensor was proposing to transfer the patents to a third party. Thus Mr. Krouzecky's evidence, which I find convincing, is that if Mr. Ali had said that QRS could not have such a right, Mr. Krouzecky would not have let the matter go. I believe that if the matter was mentioned, and I can see that it may have been, there was no real discussion. At most, it might have been viewed as something which would have to be considered at a later stage in the negotiations, which were obviously going to continue for several more weeks or even months.

I move forward in time to 24th July 2002. On that date there was a conference telephone call between the negotiating teams of the two parties. Most of the discussion was about other matters, but Miss Faulkner believes that she raised the issue of a right of first refusal (QRS to "stand in BTG's shoes") and that the BTG participants (again I think only Dr. Cole and Mr. Ali) were non-committal about it. Mr. Krouzecky said in his evidence that the discussion was of a general nature. Dr. Cole has no recollection of what was said. Mr. Ali thinks that the discussion was only about what was to happen on lapse of any of the patents. It does seem clear that this part of the telephone conference was inconclusive and that nothing was agreed or decided.

I now come to the critical emails of 23rd September 2002. The first was an email from Miss Faulkner to Mr. Ali. She dealt with a number of other detailed matters which had to be addressed on the draft agreement and then, so far as the present issue is concerned, she wrote this:

I should point out that the draft wording which Miss Faulkner proposed was crystal clear. Under her proposed clause 5.10.1, QRS would have a right of first offer if BTG contemplated assigning the patents to a third party. That is, of course, the situation which arose in 2004, and which has given rise to this case. Under the proposed clause 5.10.2, QRS would also have a right of first offer if BTG contemplated abandoning the patents.

Mr. Ali replied later on 23rd September 2002 by two emails. In one addressed to Miss Faulkner, he reproduced in full the part of her email which I have quoted. Thus, he reproduced her draft and he also reproduced the words preceding it, "but let me know BTG's reaction in principle to the suggestion". He then interpolated his own response as follows: "[Zubair Ali] Principle is okay. Have added a new clause 14.4." Mr. Ali's second email was sent later the same day. This one was addressed to Mr. Russeth. It attached Mr. Ali's current draft of the Licence Agreement, and included in that draft was for the first time clause 14.4, which has given rise to the issue in this case. Mr. Ali's draft did not include Miss Faulkner’s proposed clauses 5.10.1 and 5.10.2, but he had said in his earlier email that the principle was okay, and that he had added a new clause 14.4.

Miss Faulkner, Mr. Russeth and Mr. Krouzecky all gave evidence about their reaction to Mr. Ali's draft clause 14.4. The essence of what they said is that Mr. Ali had assured Miss Faulkner that the principle of her proposed clause 5.10.1 and 5.10.2 was "okay" and that his clause 14.4 was a redraft to give effect to the principle. They accepted the redraft on that basis. Miss Faulkner said in oral evidence that she had a discussion with Mr. Russeth. She was not happy with the change in her drafting, but when they read it in light of the unqualified acceptance of "principle is okay", they thought that they did "get there on the drafting". Then:

There are two other points of fact which I should mention before I move on to consider whether, in the circumstances, I should order rectification. First, in paragraph 19 of Mr. Ali's witness statement, he says, among other things:

In those circumstances, I believe that QRS is entitled to the order of rectification which it seeks. This is not a case in which QRS and its advisers simply misled themselves into misconstruing the new clause 14.4. Miss Faulkner had sent her own draft clause, one part of which indisputably provided that QRS's right of first offer or first refusal would apply at any time during the existence of the licence before BTG assigned the patents to a third party. It was not limited to circumstances when BTG was intending to abandon the patents. Mr. Ali fully understood that that was what Miss Faulkner’s draft provided, as paragraph 19 of his witness statement acknowledges. He was not, apparently, prepared to accept a provision to that effect. Nevertheless, he said in his email, "Principle is okay", thereby, to my mind, plainly representing that his redraft in the new clause 14.4 gave effect to that principle. He now says that the "principle" which he had in mind was "the principle agreed in Perth, that QRS could acquire the patents if BTG decided to abandon them". That is the way that Mr. Ali expressed it in his witness statement, but it is clear in the context and also from his oral evidence that the other aspect, which he had more specifically in mind, was another principle which he said had been agreed in Perth, namely that QRS could not have a right to acquire the patents if BTG decided to dispose of them.

I am sorry, but I simply cannot accept what Mr. Ali said in that respect. I do not think that any such principle had been agreed in Perth, but even if Mr. Ali thought that it had, the explanation which he gives is not a possible reading of what he meant by his email of 23rd September. He reproduced Miss Faulkner's draft of clause 5.10.1 and 5.10.2 and, immediately after it, he interpolated: "Principle is okay". He can only have been referring to the principle contained in the draft subclauses which he had just set out. Miss Faulkner had made no reference to what had or had not been said in Perth two and-a-half months earlier. The truth was that, in Mr. Ali's mind, although the principle of Miss Faulkner's clause 5.10.2 was okay, the principle of her clause 5.10.1 was not okay.

I have already quoted Mr. Ali's paragraph 19, that his deletion of the wording in clause 5.10.1 suggested by Miss Faulkner was “quite deliberate”. He added that the deletion "reflected what had been agreed in Perth". It may or may not have done that. I am inclined to the view that it did not, but if that was what Mr. Ali thought he was doing, he ought to have said so. It was unacceptable for him to say something which could only be understood in the sense that the principle of Miss Faulkner's clause was okay when he meant that the principle was not okay because he believed that it was contrary to what had, in his view, been agreed in Perth. It was also not acceptable for him to represent to QRS that his redraft gave effect to the principle of Miss Faulkner's clause when he deliberately intended that it should give effect to only half of it.

I would like to add this. Mr. Ali seemed to be a most charming and genuine person. I would be very reluctant to think that he gave evidence knowing that it was incorrect. I think it likely that this is one of the instances, familiar to judges and others with regular experience of litigation, where a person simply cannot believe that some years ago he did something which he appears to have done, and he reconstructs the matter in his own mind to a point where he is convinced that he did not do it, and that there is a different explanation altogether. He then gives evidence to the effect of the different explanation. The evidence is honestly believed when it is given, but the judge may have to say that, however sincerely the witness now believes what he is telling the court, it simply cannot be right. This is one of those cases.

There is one other thing which I must say. The authorities indicate that there may need to be some sort of dishonesty or sharp practice on the part of a defendant before rectification for unilateral mistake by a claimant can be ordered. I am sure that Mr. Ali will be distressed by this, but if I have to express a view on whether there was dishonesty or sharp practice on his part in connection with the substitution of his clause 14.4 for Miss Faulkner's draft clause 5.10.1 and 5.10.2, I must face the issue squarely and say that in my view there was.

In those circumstances, I believe that it is in accordance with the authorities that clause 14.4 should be rectified in the manner for which Mr. Jones contends. BTG appears to have left Mr. Ali in sole charge of negotiating the details of the agreement. Mr. Ali, in that capacity and at a time when, quite deliberately, he intended the subclause to apply only when BTG was proposing to abandon the patents, gave QRS every reason to believe that clause 14.4 of the agreement would entitle QRS to a first offer of the patents, not just when BTG was proposing to abandon them, but also when BTG was proposing to assign them. It would, in my judgment, be unconscionable for BTG to be able successfully to argue now that, on the terms of clause 14.4, it did not apply when BTG was proposing to assign them.

This may be a case where rectification should be based on a species of estoppel, as described by Slade LJ in The Nai Genova [1984] 1Ll LR, 353. See the discussion in paragraph 41 of the judgment of Peter Gibson LJ in Wimpey v VI Components (supra). Alternatively or additionally, rectification could be based on BTG (in the person of Mr. Ali) having knowledge of QRS's mistaken belief about the effect of clause 14.4, but "knowledge" in this instance having either meaning (ii) or meaning (iii) in the passage in Baden's case [1993] 1 WLR 509 discussed in the context of rectification for unilateral mistake by Stuart Smith LJ in Commission for New Towns v Cooper (Gt. Britain) Limited [1995] Ch. at 280 to 281. It is true that BTG did not know for certain that QRS believed what Mr. Ali had represented to it in his e-mail, but QRS was, in my view, meant to believe it, and I cannot imagine that BTG can escape an order of rectification on the ground that it had not been specifically told by QRS that it, QRS, thought that its right of first offer or first refusal arose in a case of intended sale of the patents by BTG as well as in a case of intended abandonment. At the very least it seems to me that BTG, through Mr. Ali, had what Evans LJ in Commission for New Towns v Cooper, called "shut-eye knowledge" of QRS's mistake. (The term "shut-eye knowledge" was adopted by Buxton LJ in the recent case of Hurst Stores and Interiors Limited v ML Europe Limited [2004] EWCA (Civ) 410).

I have vacillated on this, but in the end I have decided that the answer is: no. Clause 14.4, as rectified, requires that BTG will not, among other things, assign the patents "without first offering to assign" them to QRS. It is worth noting that that is what BTG, at the time of its 10th March letter, thought that the unrectified clause already meant. It is also somewhat less definitively what BTG probably thought at the time of its 8th/9th April 2004 letter. The earlier letter contained the sentence: "BTG's offer is made in accordance with ... BTG's obligations under section 14.4 ..." The later letter stated: "In satisfaction of any obligations that it may have under clause 14.4 of the Licence ..."

The question which arises is whether "first offering to assign such Patent to the Licensee" requires the making of a contractual offer, the acceptance of which creates an immediate binding contract, or whether an offer which is an invitation to treat is sufficient. It is accepted by BTG that both of its "offer" letters -- the one of 10th March 2004 and the one of 8th/9th April 2004 -- were invitations to treat and not contractual offers. I accept that there is some attraction in the argument that an invitation to treat suffices to comply with the clause. The attraction of the argument is that for an assignment of a portfolio of 77 patents for 14 inventions in several national jurisdictions to proceed, there would almost inevitably have to be a period of negotiation and investigation before the parties would be in a position to conclude a binding contract. In contrast, if the subject matter of an agreement is, for example, a single property of a sort to which standard conditions of sale apply, a simple contractual offer which the offeree either accepts or refuses without more ado is realistic. In this case, at least if the required offer had to cover the entire portfolio, I do not think that it is realistic to expect that the offeree (QRS) will normally be able simply to say "yes" or "no" when it has received and has had time to consider an offer. A further factor which enhances the point is the likelihood that the consideration for an assignment could well involve (and in BTG's subject to contract offers did involve) a split of the entire consideration between a price and royalties.

However, while I see the attractions of the argument which I have just described, I have in the end come to the conclusion that only a contractual offer will suffice to comply with clause 14.4. I am particularly influenced by the decision of the House of Lords in Walford v Miles [1992] AC 128. The effect of that case, confirming earlier decisions of the Court of Appeal, is that in English law an agreement to negotiate is not enforceable by the courts. One reason is that an agreement to negotiate under the umbrella of "subject to contract" would be worthless, because at the end of the negotiating period (the length of which is also in itself usually too uncertain to be enforceable) the offering party "would have been entitled at their whim to refuse to sign any contract": see page 136E, recording an argument of counsel but one which, I believe, their Lordships accepted. An offer subject to contract is only on invitation to enter into negotiations on a subject to contract basis. The law will not enforce the obligation to negotiate, and it seems to me pointless for it to be prepared to enforce an obligation to make an offer to enter into unenforceable negotiations. For that reason I conclude that the "offer" letters which BTG delivered to QRS and 10th March 2004 and 8th/9th April 2004 did not comply with clause 14.4 of the agreement as rectified.

I do, however, wish to add this. In my view it was sensible for BTG in the first instance not to have made a contractual offer. I do not think that BTG had in mind quite what I have in mind. It appears to have thought that making a non-contractual offer was in itself sufficient to comply with clause 14. I do not agree with that. However, it seems to me that in a relatively complex situation like the present one there is a lot to be said for BTG initiating the process by notifying QRS that a situation has arisen which may have triggered QRS's rights to receive a first offer under clause 14.4; that BTG's initial letter is not the making of the offer, but contains an outline of the terms which BTG has in mind for its offer; that BTG will be prepared for a specified period to discuss the matter, to supply such information to QRS as QRS may reasonably request, and to consider any representations or negotiating points which QRS may make; that after the discussion and negotiation period BTG would make its formal offer, thereby complying with clause 14.4; and that it would then be up to QRS to determine whether it will accept the offer or not. I accept that none of that, except the final stage, is, as a matter of law, required by clause 14.4, but I mention it as a possible way of proceeding which could diminish the risk of conflict and, as has happened in this case, litigation.

There is one further point which I wish to make about the effect and operation of clause 14.4. I preface this by saying that I have been referred to several cases which decided issues of one sort or another arising from clauses providing for rights of first refusal, rights of first offer, rights of pre-emption or other similar rights. However, all the cases tend to turn on the particular wording of the clause, and there are major variations between different wordings which may be and have been adopted. In Bircham & Co (Nominees) (No.2) Ltd. v Worrell Holdings Limited [2001] EWCA Civ 775, Chadwick LJ cited, plainly with full agreement, an observation of the Vice-Chancellor in the court below that "the effect of a pre-emption clause depends upon its own particular terms."

I will also, if I may, quote a short passage from paragraph 25 of my own judgment in Speciality Shops Ltd. v Yorkshire and Metropolitan Estates Ltd. [2002] EWHC 2969 (Ch):

In the pleadings in this case and for quite some time in Mr. Jones' submissions on behalf of QRS it was argued that, to comply with clause 14.4, BTG would be bound to ensure that any offer to assign the patents to QRS was one under which "a reasonable time" was allowed for QRS to decide whether or not to accept it. This was said to be the effect of an implied term. The argument was, I believe, significantly prompted by QRS's strong belief that the nine days within which it had been told that it had to accept the "offer" in the 10th March 2004 letter was unacceptably short. QRS has a somewhat similar complaint about the 8th/9th April 2004 letter.

However, as the arguments progressed, it seemed to me that this issue faded in importance. The basic reason was that Mr. Jones accepted that, on the authorities, even if BTG made an offer which it expressed to be capable of acceptance for, say, 60 days, it could still, under the general law of contract, revoke the offer within the 60 days as long as it had not already been accepted: Tuck v Baker [1992] 2 EGLR 195. The same proposition is supported by one aspect of the Bircham & Co (Nominees) case (supra). Equally, if the offer was made without any express period for acceptance so that it was capable of being accepted at any time within a reasonable period (a formulation which I would accept to be correct), BTG could still revoke the offer within the reasonable period. Some clauses expressly provide that an offer must be left outstanding for a minimum period. The clause in this case does not. So, on analysis, any implication of a reasonable time is not one of an implied term of how long the offer must remain outstanding and be capable of acceptance. It is only an implied term as to when the offer, if not revoked, will lapse so as no longer to be capable of acceptance.

I doubt that any declaration needs to be made on the lines of the foregoing paragraph, but since there was quite a lot of concentration on the reasonable time issue in the early stages of the arguments, I have thought it right to address the point.

A further argument for QRS is that at the meeting at BTG's office in London on 16th March 2004, a legally binding oral agreement was reached which in some respects superseded or varied clause 14.4. I do not agree. The meeting did not at all address the question, which I regard as central to my decision, of whether compliance with clause 14.4 required the making of a contractual offer by BTG, so that the invitations to treat contained in BTG's letters of 10th March 2004 and 8th/9th April 2004 did not fulfil BTG's obligation. I have, in any event, decided that issue in favour of QRS, but nothing that emerged at the 16th March meeting can affect the issue.

The subject matter of the meeting was QRS's complaint that BTG's earlier letter of 10th March 2004 did not allow enough time before QRS had to accept or reject the non-contractual offer. BTG accepted QRS's point and said that the "recalibrated" offer which it intended to make would allow a longer period (60 days) for acceptance. In my judgment it was just a negotiating meeting: an important meeting, but not a meeting at which binding contracts were made. In particular, I do not accept (if this is what Mr. Jones' argument is) that at the meeting BTG made an oral contract, the effect of which was to take away the power which it would otherwise have had under the general law of contract to revoke its offer at any time before it was accepted. Those present at the meeting did not, as it seems to me, have that aspect of the general law in mind.

Accordingly, although I decide this case substantially in favour of QRS, I do not consider that the outcome of the events of the meeting on 16th March 2004 affects the issue in any way.

I believe that I have now dealt with all of the issues which need to be addressed in this judgment and I have no further observations to make.