Volumatic Ltd v Ideas for Life Ltd

On 5 May 2005, the Claimant, Volumatic Limited (Volumatic) and the Defendant, Ideas for Life Limited (IFL) signed a document (the Agreement) relating to the design and production of a banknote pouch (the Pouch) to fit Volumatic’s cash counting machines. Although I have adopted the parties’ nomenclature for that document as “the Agreement”, what in fact was agreed by and in that document is the subject matter of these proceedings. The Agreement included a requirement that “all property rights” in the Pouch be assigned to Volumatic. By these proceedings, Volumatic alleges that the Agreement was binding on the parties, and seeks specific performance of that term.

It is common ground that the expression “all property rights” includes a number of patents, hence Volumatic’s action can be said to have been properly brought in the Intellectual Property Enterprise Court, even though no issues of intellectual property law fall to be decided.

At trial, Mr Gareth Tilley appeared for Volumatic, and Mr Simon Popplewell appeared for IFL. I am grateful to counsel and those instructing them for the clarity of their written submissions and the efficiency with which they dealt with a large number of legal arguments in the course of their oral submissions.

Following the Case Management Conference, HHJ Hacon approved the following list of issues:

“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

Whether it would be inequitable to order specific performance.

Whether IFL has a defence of laches.

Whether the claim is statute barred.

Whether the court should refuse specific performance on the discretionary grounds that:

Whether IFL holds the intellectual property rights in the pouch on trust for Volumatic.

Whether the court should order specific performance of the Agreement.

Whether the court should order damages in lieu of specific performance.

The quantum of loss and damage suffered by Volumatic.

Whether IFL should be ordered to grant Volumatic exclusive rights to use any know-how in respect of the Pouch.”

Issue 14 was the only issue not to be determined at the trial.

In my discussion of the issues below, I have reformulated some of them, and discussed them in a slightly different order, but with the aim of not affecting the substance of the issues for determination. The parties acknowledged that there was significant overlap between the issues, and indeed, in their submissions, the parties often rolled issues in together.

Volumatic adduced evidence from two witnesses:

IFL adduced evidence from a single witness, Mr Richard Williams, who is a director of IFL and of what was described as an “associated company”, Designs For Life Limited (DFL). IFL and DFL have common shareholders and directors. For the most part, the legal distinction between DFL and IFL does not matter for the purposes of these proceedings, and, at times, Mr Williams used the two corporate entities interchangeably. Mr Williams was also cross-examined, and no criticism was made of his evidence.

I accept that each of the witnesses was doing his best to recall and recount details from discussions some of which were over 14 years ago. Each witness was asked his understanding of the legal effect of the Agreement. Whilst their answers differed, I accept that each was telling the truth as he believed it to be. The parties agreed that the subjective intention of the parties was not relevant to many of the issues before the court. In the end, I have reached conclusions different to some of the witnesses on issues of law that are for me to decide, but I accept that, in giving their evidence, they were doing their best to assist the court.

The following recitation of facts is uncontentious, except where I indicate otherwise:

The parties agreed the relevant legal principles, which I gratefully adopt from Mr Tilley’s skeleton argument. I have interpolated the areas where Mr Popplewell disagreed. Mr Popplewell also asserted that a number of these propositions were irrelevant, had not been pleaded or did not arise on the facts of this case, but he did not disagree with them as legal propositions.

“(1)

In the case of an express agreement the onus of proving there was no contractual intention is on the party who so asserts, and the burden is a heavy one: Chitty on Contracts (32^nd edn) at 2168, approved in Edge Tools & Equipment Ltd v Greatstar Europe Ltd [2018] EWHC 170 (QB) (Martin Chamberlain QC) at [19].

(2)

In deciding whether there was an intention to create legal relations:

a.

the court applies an objective test: RTS Ltd v Molkerei Alois Muller GmbH and Co KG [2010] 1 WLR 753 at [45] (Lord Clarke); and

b.

the lack of certain terms of economic or other significance to the parties having been finalised does not necessarily negate an intention to create legal relations: RTS at [45].

(3)

An agreement is not incomplete merely because it calls for some further agreement between the parties. Whether such further agreement is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the matter in which the transaction already agreed to will in fact go ahead is a question of construction: Immingham Storage Co Ltd v Clear plc [2011] EWCA Civ 89 at [18]. There may be an enforceable agreement even if the parties contemplate entering into a further, more formal, agreement later: Edge Tools.

[Mr Popplewell invited me to pay close attention to the statements in Immingham Storage on which Mr Tilley relied, asking that I note what follows immediately on from the proposition set out above: “In the former case, there is no enforceable contract either because the condition is unfulfilled or because the law does not recognise a contract entering into a contract. In the latter case, there is a binding contract and the reference to the more formal document may be ignored.” Mr Tilley did not disagree.]

(4)

Even if the putative agreement would otherwise be held to be incomplete, the parties’ performance may justify the implication of terms to give efficacy to the agreement: F.&.G. Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd’s Rep 53.

(5)

Where the parties contemplate a further formal agreement, execution of such agreement is not necessarily a condition that has to be fulfilled before the parties become bound; they may be bound by the original agreement unless and until it is superseded: Branca v Cobarro [1947] KB 854.

(6)

A contract may come into existence during and as a result of performance (rather than necessarily because of an offer and acceptance): G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd's Rep 25.

(7)

When deciding whether or not performance has taken place within a reasonable time, a court is not limited to what the parties contemplated or ought to have foreseen at the time of entry into the contract but can, with the benefit of hindsight, take account of a broad range of factors, including the nature of the cause or causes of any delay in performance: Peregrine Systems Limited v Steria Limited [2005] EWCA Civ 239 at [15].

(8)

If a party is entitled to treat himself as discharged from the contract and wishes to do so he must accept the repudiation by an unequivocal overt act inconsistent with the substance of the contract: Chitty at 24-013.

(9)

Where a reasonable time has passed for performance but the innocent party has not sought to bring the contract to an end, the innocent party will be regarded has having made its election and decided not to terminate: Chitty at 24-002, 24-005.

(10)

The only ways the obligations under a binding contract can cease to be binding are (relevantly):

a.

if there is a variation of the obligation, which requires consideration;

b.

if the agreement is discharged by agreement or for breach;

c.

if there is an estoppel.

(11)

The court may have regard to post contractual conduct to establish an estoppel by convention (Lewison, The

Interpretation of Contract, at 3.19).

(12)

Estoppel by convention requires it to be unjust or unconscionable to hold the parties to their bargain: First National Trustco (UK) Limited v Page [2019] EWHC 1187 (Ch) (Joanna Smith QC) at [100]-[114].

(13)

A party to a contract may obtain specific performance of a contractual promise made to a non-party: Beswick v Beswick [1968] AC 58.

(14)

A claim for specific performance is not subject to a limitation period but is subject to the doctrine of laches: P&O Nedlloyd BV v Arab Metals Co and others (No 2) [2007] 1 WLR 2288 [43][47].

(15)

To make out the defence of laches more than mere delay is required, there must be an element of detriment to the defendant: Snell’s Equity (33^rd edn) 5-011.

[Mr Popplewell disagreed with this proposition, arguing that there are cases where mere delay is sufficient. I return to his submissions below.]

(16)

Specific performance may be refused on the discretionary ground of “unclean hands” in circumstances where there has been a misrepresentation that justifies rescission of the contract: Snell at 17-026.

[Mr Popplewell agreed with that statement, and added that there are other discretionary grounds on which specific performance may be refused. Mr Tilley did not disagree.]

(17)

There is no actionable misrepresentation where the statement in question:

a.

is an honest opinion (Chitty on Contracts at 7-008 to 7009); and/or

b.

is not relied upon in entering into the contract (Chitty on Contracts at 7-036).

(18)

Where a breach of contract consists in a failure to do something it may be classified as a “continuing breach” with the consequence that the limitation period does not start to run until the obligation ceases to be capable of performance: Midland Bank Trust Co v Hett, Stubbs & Kemp [1979] Ch 384 (Oliver J) at 435, 438-9; McGee, Limitation Periods (8^th edn) at 10.03110.036.

[Mr Popplewell submitted that the Court of Appeal said in Capita (Banstead 2011) Ltd (formerly known as FPS Group Ltd) and Anor v RFIB Group Limited [2015] EWCA Civ 1310 that the Midland Bank case relied on by Mr Tilley was wrongly decided. I return to this submission below.]”

Therefore, this is a case where the legal principles were largely agreed – the disagreement arose as to their application to the facts of the case.

On behalf of IFL, Mr Popplewell argued that it was relevant to consider that Volumatic had at the time of the trial put forward four different versions of its case. It was Volumatic’s initial case, he said, that the assignment of the intellectual property was “conditional” on the matters set out in Stage 2 of the Agreement (10 year royalty payment, immediate payment of £20,000, 10 year exclusive manufacture). Therefore, Mr Popplewell said, it was Volumatic’s

Volumatic then amended its case to say that the obligations in Stages 2 and 3 were consideration for the assignment of the intellectual property. But this meant, Mr Popplewell submitted, that Volumatic’s cause of action accrued on completion of Stage 1 (in or around 2007), creating issues of delay/laches.

Volumatic’s third version, Mr Popplewell said, was in its Reply, and argued that the Agreement is of itself sufficient to grant a 10 year supply agreement.

Mr Popplewell said that the fourth version of Volumatic’s case was hinted at in Mr Amos’ witness statement, where he appeared to suggest that the obligation to provide a 10 year supply agreement had been varied to a 5 year obligation with IFL’s consent.

I do not find this discussion helpful. Parties are entitled to amend their pleadings in accordance with the Court’s rules, and amend Volumatic did. IFL came prepared to meet Volumatic’s case, which was the third version to which Mr Popplewell referred above. I did not take Volumatic to be running the fourth version hinted at in Mr Amos’ witness statement, and I would have rejected it on the facts had it been put. Whilst it would have been preferable for the version run to be set out in the amended Particulars of Claim, there are costs consequences of multiple amendments to pleadings in the IPEC. Volumatic’s case was set out in its Reply: that is the case it has run, and the case IFL has met.

Given that the Agreement is an express, written, commercial document, IFL conceded that it must prove that there was no intention to create legal relations. I accept that the burden is a heavy one: see Edge Tools & Equipment Ltd v Greatstar Europe Ltd [2018] EWHC 170 (QB) per Martin Chamberlain QC sitting as a Deputy High Court Judge at paragraph 19. Mr Tilley also helpfully took me to Branca v Cobarro [1947] 1 KB 854 per Lord Greene MR and Immingham Storage Company Limited v Clear plc [2011] EWCA Civ 89.

IFL submitted that the “key piece of evidence as to the intention of the parties” is the email of 7 February 2005, some three months prior to the date the Agreement was signed. It is common ground that this email was prepared after the Warwick Meeting to record what was agreed – it was drafted by Volumatic and sent to IFL/DFL. IFL expressly relied on the following paragraph of that email:

“This represents a summary of the proposed agreement – it will require legal input to finalise – this will be completed in April in order to delay the legal fee expenditure. In the meantime, DFL ([Mr Williams]) and Volumatic ([Mr Bonné]) will sign this letter/email hence agreeing the intent to go ahead in this form.”

In the event, April came and went and the Agreement was not signed until May. IFL submitted that the email of 7 February 2005 clearly shows that there was no intention to enter binding relations because of the reference to requiring legal input, and the use of the word “intent”, and that nothing intervened to alter that lack of intention between then and

Additionally, IFL relied on the following:

To the contrary, Volumatic relied on the prior legal relationship of the parties, and the following matters which it said can be taken objectively from the Agreement itself:

Additionally, both parties relied on the subsequent behaviour of the parties, Volumatic to suggest it was binding and IFL to suggest the reverse.

Applying an objective test, in my judgment, the parties did not intend the Agreement to be legally binding. It was a document designed to record the consensus reached at the Warwick Meeting – both parties conceded that the Warwick Meeting had no legal effect. Whilst the document is signed, this was done, in my judgment, not to create legal relations, but for the purposes of the parties recording the consensus – the signatures indicate the agreement of both sides that the document accurately expresses what was agreed in Warwick. This is recognised in the Agreement itself, where it records “It is recognised etc”. The Agreement is, in my judgment, no more than that. As summarised by Mr Amos in his email of 16 March 2012, the Agreement “best captures the substance of what both companies hoped to achieve”: it was not intended to create legal relations. The heavy burden that IFL set out to prove has been met. In reaching this conclusion, I have been mindful that a lack of terms of economic or other significance does not necessarily negate an intention to create legal relations. I am also mindful that there could be an intention to create legal relations even where further agreements were contemplated. But on its terms, viewed objectively, the Agreement was not, in my judgment, intended to create legal relations. I agree with IFL’s submission set out in paragraph 21(a), (b), (d) and (f) above. The arguments advanced by Volumatic, summarised in paragraph 22 above, are not inconsistent with my findings – it is not unusual that a set of minutes would be reviewed by lawyers, and even so, the use of

“subject to contract”, whilst helpful, is not determinative. Similarly, the use of headed paper and the words “agreement” and “agree” are not determinative.

Each party argued that the behaviour of the parties following the signing of the Agreement supported its suggested interpretation – Volumatic saying that the parties largely carried out the terms of the Agreement, whilst negotiating variations, and IFL saying that the parties carried on as if the Agreement was not binding. Mr Tilley cautioned me in looking at subsequent conduct, and I accept his position on that front: what is relevant is the intention of the parties at the time the Agreement was entered into. Mr Tilley therefore cautioned me against relying on later comments by Mr Amos, who was not at Volumatic in May 2005. I agree. But that does not resolve the issue. The clear documentary evidence was that no-one involved suggested that the Agreement was binding until the email of Mr Amos of 18 October 2016, long after several sets of legal advisors had been involved on each side. Meanwhile, the parties carried on as if the Agreement was not binding, with neither party seeking to rely on its terms, including important terms such as price, royalty rate and payment terms. Also, whilst many documents were disclosed in the proceedings, and many emails were in evidence, none of them suggests that the Agreement was binding until Mr Amos’ email of 18 October 2016. To the extent Mr Amos suggested in his second witness statement that other statements were made orally, I do not accept that. When asked in crossexamination, he could not recall specific conversations, but rather relied on the notion that the issue must have come up. Rather, I conclude from the absence of such documents that the subsequent conduct over a period of more than 11 years, up until 18 October 2016, was entirely consistent with the Agreement not being binding.

In the alternative, IFL submitted that, if there was intention to create legal relations, it was only in relation to Stage 1. Given my finding above, I need only deal with this submission briefly. At trial, Mr Popplewell did not press this aspect of his case with great vigour, in my view, rightly. This argument is without foundation, and I reject it. Applying an objective test, there is nothing to suggest that the parties intended to be bound by part of the Agreement, but not all of it.

In my judgment, in entering into the Agreement, the parties did not intend to create legally binding relations. Volumatic’s case therefore fails. However, as multiple other submissions were argued, I deal with each below.

IFL relied on the vagueness or uncertainty of the Agreement to argue that it lacked contractual force: see Chitty on Contracts, 33rd edition, at 2-148. IFL said that no definite meaning can be given to the Agreement without adding further terms. IFL relied on the following:

Volumatic submitted that “all the essentials are there”:

Further, Volumatic said that none of the matters listed by IFL is so fundamental to the contract that it affects the ability of the parties to perform it.

Had I found for Volumatic on the issue of intention to create legal relations, I would have rejected IFL’s submissions in relation to lack of certainty. I would have done so with some hesitation: the Agreement (as I have found it) is a set of minutes – it is therefore no surprise

I therefore do not need to decide if it is open to Volumatic on the pleadings to argue that the parties’ performance justifies the implication of terms to give efficacy to the Agreement (relying on F.&.G. Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd’s Rep 53).

I would have reached the same conclusion on this issue had I found that the Agreement was only binding in relation to Stage 1.

It was common ground that estoppel by convention arises whenever two parties act, or negotiate, or operate a contract, each to the knowledge of the other, on the basis of a particular belief, assumption or agreement – in such a situation, they are bound by their belief, assumption or agreement: see Halsbury’s Laws, Volume 47 (Estoppel) at 368. I was also taken to helpful passages in First National Trustco (UK) Ltd and Anor v Kevin Page and Ors [2019] EWHC 1187 (Ch) per Joanna Smith QC sitting as a Deputy High Court Judge, where Ms Smith noted that estoppel by convention requires it to be unjust or unconscionable to hold the parties to their bargain (at paragraphs 100 to 114).

I have found that the Agreement is not legally binding on the parties. If I am wrong in that, IFL submitted that Volumatic is precluded by estoppel by convention from asserting that the Agreement is legally binding, because both parties acted, to the knowledge of the other, as if the Agreement was not binding on them and it would be unconscionable to allow Volumatic to resile from that now.

In relation to the notion of its being unjust or unconscionable to hold the parties to their bargain, IFL submitted that it had suffered prejudice as follows:

Volumatic submitted that the two main features of estoppel by convention are missing. First, it said there was no common assumption of fact or law which must be communicated by words or conduct so as to “cross the line” (see First National Trustco at paragraph 100).

Second, Volumatic said the element of unfairness or injustice that makes it unconscionable to go back on the assumption is missing here. Volumatic disputed the claim about the improvements to the Pouch on the basis that (a) they were de minimis and (b) Volumatic is not asking for an assignment of rights in the improvements.

I have found above that the Agreement merely records the consensus of the parties at the Warwick Meeting – and I have found that that is how they behaved following the signing of the Agreement. It was not treated as a binding agreement. No-one sought to enforce its terms. No-one called for, or provided, the £20,000 referred to. Volumatic did not call for an assignment of the patents. The 10p per Pouch aim was never achieved. The royalty rates fluctuated, without reference to the Agreement. It was not until late 2016 that either party suggested that the Agreement was binding. In my judgment, this is sufficient to create an estoppel by convention. There was, in my judgment, a common assumption communicated by conduct which “crossed the line” – both parties acted on the basis that the Agreement was not legally binding, and it would now be unfair, unjust and unconscionable to go back on that shared assumption. I find, and do so clearly, that the prejudice submitted in paragraphs 36 (a) and (d) above is made out. I say more below in relation to the prejudice summarised in paragraphs 36 (b) and (c). I accept that the five factors set out by Briggs J (as he then was) in Revenue & Customs Commissioners v Benchdollar Ltd [2010] 1 All ER 174 and the four factors set out by Joanna Smith QC at paragraph 113 of First National Trustco have been made out on the facts of this case. Parties who act for 10 or more years on one legal basis cannot then turn around and suggest something contrary to that basis. Therefore, had I found that the Agreement was binding, I would have found that Volumatic is now estopped by convention from asserting its terms.

As I have found that the Agreement had no binding legal force (or if it did, Volumatic would be estopped from enforcing it), whether or not it was varied is immaterial. However, for completeness, I note that IFL relies on the post signing conduct of both parties as offers by conduct by each party not to be bound by Stages 2 and 3 of the Agreement, which were then accepted by the other party by its conduct. As a result, IFL said that Stages 2 and 3 of the Agreement have been varied (Volumatic said IFL must mean “discharged” on the basis that IFL alleged that there are no further obligations under Stages 2 and 3 at all, but Volumatic conceded that the principles to be applied do not differ for present purposes).

Volumatic accepted that some of the post-signing conduct may amount to variation, but not so as to discharge Stages 2 and 3 of the Agreement: for example, the agreed change in royalty rate is merely that, not a discharge of the whole of Stages 2 and 3. But Volumatic said that the other factors relied on are part of the course of negotiations between the parties, or evidence of breach, but not so as to discharge or vary the Agreement. Mr Tilley described the Agreement in this context as “a useful backstop for both parties”.

I agree with Volumatic. If (contrary to what I have found) the Agreement is binding and enforceable, then the conduct of the parties may have varied the Agreement (for example, in relation to royalty rates and per Pouch cost), but it did not discharge Stages 2 and/or 3. I do not accept that any of the exchanges (written, oral or by conduct) to which I was referred amounts to an offer to discharge the Agreement, let alone an offer that was then accepted. No variation was proposed or accepted in relation to the assignment of the intellectual property. I therefore reject IFL’s argument.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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,

IFL submitted that, if the Agreement was binding and Volumatic is not estopped from relying on it, it was an implied term that Volumatic would comply with its obligations under Stages 2 and 3 within a reasonable time. Volumatic did not dispute that such a clause should be implied into the Agreement, but the parties differed on what a reasonable time might be. IFL said 3 months from the completion of Stage 1; Volumatic said 10 years.

Given my findings on the issues above, this issue does not arise. But if I am wrong, IFL asked me to find that it is now too late for Volumatic to call for the assignment of the intellectual property in the Pouch on the basis that it has performed the three requirements of Stage 2, or is willing now to do so. Volumatic, on the other hand, said that I should take into account the ongoing negotiations over the past 10 years, the lack of urgency to regularising the ownership of the intellectual property, the uninterrupted supply of Pouches and the continuing commercial relationship between the parties. Whilst noting that 11 years is a long time, Volumatic’s behaviour, it said, was reasonable.

I can deal with this issue briefly. I have found that Volumatic has not complied with any of the three requirements set out in Stage 2. Could it do so now? Volumatic’s own evidence was clear – there was not in 2007 and there is not now a willingness on Volumatic’s part to provide DFL with a 10 year exclusive manufacturing agreement. Mr Amos’ evidence in the witness box was clear – Volumatic was not at any time since 2005 willing to enter into a 10 year exclusivity agreement, because it had been advised by its then legal advisors not to. Thus, some 10 years later, it does not matter whether 10 years would be a reasonable period or not: Volumatic remains unwilling to enter into a 10 year exclusivity agreement, despite the fact that it has now purchased Pouches only from DFL for 10 years. So whether a reasonable period was 3 months or 10 years does not matter – Volumatic’s case on this issue still fails.

The specific performance sought by Volumatic is an equitable remedy, which requires the party seeking it to come to court with clean hands. I can also deal with this issue briefly. IFL relies on the same factual matrix as pleaded in relation to estoppel by convention to say that Volumatic has unclean hands.

Had I found that the Agreement was binding and that estoppel by convention did not prevent its enforcement, I would have found that Volumatic was disentitled to specific performance, because it conducted its relationship with IFL as if the Agreement were not binding, for the same reasons I have set out above in relation to estoppel by convention.

It is conceded that, prior to entering into the Agreement, Mr Bonné on behalf of Volumatic indicated that Volumatic would be ordering a high volume of Pouches. One account is that Mr Bonné said “in the millions”. Another account is that Mr Bonné said “10 million pouches per year”. Mr Williams suggested that he understood Mr Bonné to mean that the figure would be achieved in a year. I do not need to decide exactly what was said by Mr Bonné because it does not matter - it is clear from the evidence before me that IFL/DFL did not rely on this statement, whichever version of it was made. It was not written down at the time (or even mentioned in any written correspondence), nor was it (or any other reference to quantity) included in the Agreement or in any of the other documents passed between the parties at the time. In my judgment, it was no more than the overly enthusiastic puff of an entrepreneur: IFL/DFL appreciated that and did not rely on it.

Had they relied on the statement, IFL/DFL would have been wrong to do so. IFL/DFL were supplying pouches to Volumatic in 2005 at the time the statement was made, and had been since 2001. In those years, sales had been slow, and orders were in the hundreds of thousands – considerably short of “millions” or “10 million”. IFL/DFL were aware of Volumatic’s customer base, and aware that IFL/DFL did not have customers with requirements anywhere near those levels. IFL/DFL knew that a significant number of new customers would be needed in order to achieve sales of those levels. Further, 10 years later, as the business has grown steadily, annual orders remain at a quarter of the 10 million figure. Further, Mr Williams told me candidly from the witness box that he would never have been able to make 10 million Pouches had they been ordered, and certainly would have been unable to ramp up production to be able to make 10 million Pouches within a year.

For these reasons, I have no hesitation in rejecting IFL’s argument.

I have found that the parties did not intend the Agreement to be legally binding, and acted on that basis for more than 10 years. It is therefore not surprising that the terms of the Agreement were not complied with by the parties. IFL relies on the following failures:

I accept these submissions, other than in relation to 67(a) above: as DFL and IFL behaved interchangeably, it does not matter to whom royalties were paid. I have found that Volumatic is not entitled to enforce the Agreement. Had I found that it was, then I would have denied specific performance on this ground. A party cannot ignore an agreement for more than 10 years and then seek specific performance of the clause that benefits it.

Both parties accepted that the Limitation Act 1980 does not apply to claims for specific performance, and nor can it apply by analogy: see P&O Nedlloyd BV v Arab Metals Co and Ors (No 2) [2006] EWCA Civ 1717. But both parties accepted that the defence of laches is available in claims of this nature:

“The equitable doctrine of laches … provides the court with ample power to refuse relief when delay on the claimant’s part would make it inequitable to grant it and I should be surprised if there were many cases in which, in the absence of fraud, the court would be willing to grant relief by way of specific performance if the claim had not been made within six years after the contract was due to be performed” (P&O at paragraph 52).

Volumatic argued that the defence of laches could not apply on two grounds. First, it argued that if Volumatic was only entitled to demand assignment after performing 10 years of royalty payments, that hurdle has only been met recently and hence there is no delay. Second, Volumatic argued that, even if there was a delay, it had not been prejudicial to IFL: the parties had carried on in their commercial relationship, pursuing a consensual resolution to the ownership of the intellectual property, rather than taking the matter to court, in circumstances where there was no imperative to clarify the ownership position (citing Frawley v Neill [2000] CP Reports 20 and Patel and Ors v Shah and Ors [2005] EWCA Civ 157).

I reject Volumatic’s first argument. There has clearly been a substantial delay. I have found that the 10 years of royalties was not a condition precedent to assignment. Rather, the “mutual acknowledgment” required for Stage 2 of the Agreement to activate was completed (including on Volumatic’s pleaded case) in 2007/2008. These proceedings were commenced 10 years later. Even deducting a year for the without prejudice negotiations, there has been substantial delay.

In relation to prejudice, IFL submitted that it was not necessary, but, if it was, it relied on the same factors as set out above in paragraph 36.

I do not need to decide whether or not prejudice is required because I find it is present. As set out above, I do not accept that IFL has suffered prejudice as a result of Mr Bonné’s entrepreneurial puff statements. I also do not accept that IFL suffered prejudice as a result of improvements to the Pouch. Mr Williams was clear in his oral evidence that none of the improvements related to the invention disclosed in the patents, so, on the facts, this issue does not arise. But I do accept that IFL would suffer prejudice on the basis of its submissions, summarised in paragraphs 36 (a) and (d) above, which is, in my judgment, sufficient to establish laches.

I have set out my conclusions above in relation to the allegations of unclean hands on the basis of Volumatic conducting itself as if the Agreement were not binding (sub-issue (a)) and Volumatic’s failure to comply with the terms of the Agreement (sub-issue (c)): my conclusions are the same in the exercise of my discretion. In relation to improvements to the pouch (sub-issue (b)), I would not have refused specific performance on this ground for the reasons I have given above. Therefore, had I otherwise decided to order specific performance, sub-issues (a) and (c) would have tipped the balance against doing so but subissue (b) would not. Delay (sub-issue (d)) also would have tipped the balance against ordering specific performance – if the 10 year delay were insufficient to establish laches, it would have weighed heavily in my exercise of the Court’s discretion, such that I would not have ordered specific performance. In P&O Nedlloyd the Court of Appeal noted that a party is not entitled to bring a claim for specific performance “unless he has shown himself ready, desirous, prompt and eager” (citing Milward v Earl Thanet (1801) 5 Ves 720n). Further, the Court of Appeal noted:

“Specific performance is relief which this court will not give, unless in cases where the parties seeking it come promptly, and as soon as the nature of the case will permit.”

Parties are expected to bring claims for specific performance promptly. That was not done in this case. In addition to refusing specific performance on the basis of laches, I would also have refused it in the exercise of my discretion.

I do not consider this issue to go any further than the issues I have already decided above.

For the reasons set out above, the application for specific performance is refused.

Volumatic submitted that if it is entitled to assignment of the intellectual property, then until that assignment is perfected, IFL holds the intellectual property on trust for Volumatic. I have found that Volumatic is not entitled to assignment of the intellectual property, so, even if Volumatic is right at law (which I do not need to decide), no trust can arise.

Volumatic argued that, had I found that the intellectual property should be assigned, but refused to order specific performance for any of the reasons set out above, I should order a damages enquiry in lieu of specific performance. Again, given my findings, this issue does not arise.

The parties were in agreement that any statute bar applies only to the claim for damages, because the Limitation Act 1980 should not be applied to claims for specific performance: P&O Nedlloyd BV v Arab Metals Co and Ors (No 2) [2006] EWCA Civ 1717. I have found that such a claim does not arise, but if it had, it would have arisen when “mutual acknowledgement of the completion of [Sub-]Stage 4” occurred, on Volumatic’s own case, in 2007/2008. The limitation period for claims for breach of contract is six years (section 5, Limitation Act 1980). Therefore, in my judgment, that claim is clearly statute barred.

I do not accept the position, set out in Volumatic’s Reply, that a fresh cause of action arose on the expiry of the 10 year exclusive supply period – that no longer sits with how Volumatic now pleads its case. Nor does it assist Volumatic to argue that the obligation to assign the intellectual property is a continuing one – were that the case, Volumatic could wait decades before bringing its claim, and the purpose of the statute of limitations would be frustrated. I accept IFL’s submission that continuing obligations such as the duty to repair may avoid limitation periods (see Bell v Peter Browne and Co [1990] 2 QB 495 at 500E to 501F), but the obligation here is not the same: had IFL assigned the intellectual property, there would have been no continuing obligation to do so again. I am bound to follow Capita (Banstead 2011) (formerly known as FPS Group Ltd) and another v RFIB Group Ltd [2015] EWCA Civ 1310, which held at paragraph 20 (per Longmore LJ with whom Henderson LJ

Any claim for damages is therefore time barred.

Volumatic argued that the “objective intention” of the Agreement was to equip Volumatic with everything it needed to exploit the rights granted – and that the intellectual property would be useless to Volumatic without a right to use any know-how. Know-how, Mr Tilley reminded me, is not property, and hence cannot be “assigned”. But it is clear on the terms of the Agreement that such a clause is needed, he said, and that I should construe the Agreement to include such an exclusive right.

IFL submitted that such a claim is “simply wishful thinking” – there being no basis on which a reasonable person with the background knowledge of the parties would construe the Agreement as requiring IFL to transfer know-how to Volumatic.

I agree with IFL. The clear language of the Agreement refers only to “property”, and knowhow is not property. The property is to be “assigned” and Mr Tilley conceded that knowhow is not capable of assignment. In any event, any know-how was in the possession of DFL, not IFL, the party to the Agreement and the owner of the intellectual property. Further, any know-how on the production process (as opposed to the design process) actually sat with the people running the factories in China who manufacture the Pouch on behalf of DFL.

In my judgment, there is no basis at all for inferring such a construction, and I reject it.

In summary, for the reasons set out above:

Volumatic’s claim is dismissed.