Category Archives: General Commercial

Resolving disputes over IP agreements

friendsHow should the parties to a licence agreement, or other IP agreement, resolve their contract disputes?

Some would reply: amicably, quickly, reasonably. If they can, all well and good, and no special contract terms are needed. But the drafter of the IP agreement needs to cater for the possibility that they can’t.

If you know what the dispute is about, you can form a view on the most favourable dispute resolution mechanism to protect your client’s interests. For example, do you want a thorough examination of the legal issues by a superb court that leaves no stone unturned, and comes up with a magisterial (and public) conclusion? Or would you prefer something cheap, quick and private, focussed more on commercial outcomes than legal precedent?

At the time the agreement is made, it may be difficult or impossible to predict whether any disputes will arise, and what they will be about. So, any dispute resolution clause is a bit of a gamble. It may be best to stick to something ‘plain vanilla’ and, if a more fancy mechanism is needed, try to negotiate it with the other party when the dispute arises.

But what is a plain vanilla solution? Should you go for litigation in court, or arbitration? In the latter case, do you opt for a 3-person arbitration panel which will be expensive but reduce the risk of a quirky decision, or is it best to have a single arbitrator?

In the middle of negotiations, and depending on one’s bargaining position, the priority may be to find a solution that is not obviously terrible. The issue is important, and may justify two or three rounds of proposal and counter-proposal, but probably not many more.

IP Draughts’ preferences tend to reflect the type of clients that instruct him, and his background as an English solicitor. Others may have a different starting point that is better for them and their clients.

There is no absolute right or wrong on this issue, but the closer one can get to a list of preferences, the easier it is to strike a deal.

Trial by Ducking Stool - not part of the ADR toolkit

Trial by Ducking Stool – not part of the modern ADR toolkit

Remember that the final method of dispute resolution is either to go to court or arbitration. Other methods of ADR, such as mediation, can only be viewed as intermediate steps. If you want to force the parties to go to mediation or to have the CEOs negotiate, fine, but IP Draughts doubts the value of such an obligation. It may be better to include these as voluntary options that the parties must consider, but not be obliged to follow.

For the final dispute resolution mechanism, IP Draughts’ preferences, if English law and jurisdiction are not acceptable, include:

Choice of law

Dealing with European parties

  • A large trading nation with a ‘North European’ approach
  • Laws that are not too prescriptive
  • Difficult to get a common law legal system (there aren’t many in Europe)
  • Possible solutions: Swedish or Dutch law
  • Second choices: German or Swiss
  • To avoid: French, Italian, Greek, smaller nations

Dealing with US parties

  • Try to avoid US, offer European alternative
  • But if forced to choose US, go for large State with reputation re commercial disputes
  • Preferably East Coast
  • Preferably laws as close as possible to English law
  • Possible first choice: New York law
  • Second choices: Massachusetts or Delaware

Dealing with parties in the Far East, India, etc

  • Common law system if possible, eg Australia, Hong Kong, Singapore

Choice of dispute resolution mechanism

Generally

  • No overall, strong preference for courts or arbitration
  • In England, courts are efficient so may be preferable
  • Arbitration may be preferable in countries whose court systems are unattractive
  • If confidentiality is a major issue, this may point to arbitration

If arbitration is chosen

  • Essential to specify arbitration body
  • Consider WIPO arbitration
  • Avoid ICC – too expensive, heavyweight, not user friendly
  • Prefer single arbitrator
  • Sometimes prefer expedited arbitration procedure (eg for smaller claims)
  • Need to specify seat of arbitration – procedural laws in that jurisdiction will govern

If court litigation is chosen

  • Should be same as law – don’t have law of country A and courts of country B
  • Overlapping issues with choice of law, above
  • Avoid corrupt, biased, slow, jury trials, difficult to get to from Heathrow Airport

 

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Filed under Contract drafting, General Commercial, Intellectual Property

Should the courts hear more appeals against arbitrators’ decisions?

Cwm Giedd: attractive venue or remote dead-end?

Cwm Giedd: attractive venue with good facilities, or remote dead-end?

This posting is a response to a lecture given by the Lord Chief Justice of England and Wales, Lord Thomas of Cwmgiedd, on 9 March 2016. The title of the lecture was Developing commercial law through the courts: rebalancing the relationship between the courts and arbitration.

The central argument of Lord Thomas’s lecture is that legislation brought in 36 years ago to make England and Wales more attractive as a venue for arbitration is having a long-term, detrimental effect on the development of English contract law.

The Arbitration Act 1979 strictly limited the circumstances in which a party could appeal against an arbitrator’s decision to the courts. According to Lord Thomas, before the Act was brought in:

  • “Much was made of delay, the cost and expense and lack of finality because of the [appeal] procedure. It was said to make London an uncompetitive venue for dispute resolution.”
  • 300 applications to appeal were made each year in the English courts against arbitral awards. After the Act was introduced, this dropped to 50 a year. Only a third of these applications are accepted and lead to a hearing of the substantive issues.

It seems that the Act was successful in helping to establish a thriving market in arbitration in England and Wales. But a consequence of this success is that the English courts (including the appeal courts) are hearing fewer commercial cases. In some market sectors, the courts (it is said) have an insufficient throughput of cases to enable the common law to adapt to changing commercial practices. Again in the words of Lord Thomas:

  • “[A] consequence has been to undermine the means through which a significant part of  [London’s] strength – its ‘excellence’ [-] was developed.”
  • “[The loss of cases to arbitration, and loss of appeals to the courts] reduces the potential for the courts to develop and explain the law.”
  • “[Another effect is] retarding public understanding of the law, and public debate over its application.”
  • “The restriction in relation to appeals where the question is one of general public importance is, I have little doubt, a serious impediment to the growth of the common law.”

commercial courtReading the speech, IP Draughts struggled to relate it to his own experience of commercial contracts. It seems that Lord Thomas has past experience as a judge of the Commercial Court, though much of his time now as Lord Chief Justice is devoted to the criminal justice system. The Commercial Court is set up to handle high-value contract disputes, particularly in traditional areas such as shipping and insurance, and these areas seem to be the focus of Lord Thomas’s concerns.

But the Commercial Court is by no means the only part of the High Court that deals with contract disputes. The Technology and Construction Court deals with many contract disputes concerning computer technology, and the Chancery Division tends to be the place where disputes concerning IP contracts are heard, on topics as diverse as the licensing of the patents for the blockbuster drug Humira, or Elton John’s management and recording contracts. Other commercial disputes find themselves in the general list of the Queen’s Bench Division or elsewhere in the English court system. The development of English contract law through reported cases is not necessarily prejudiced just because one part of the court system has a reduction (but not a complete drying-up) in case numbers in certain market sectors.

That the lecture is focussed on the diet of the Commercial Court becomes clearer in a key sentence in paragraph 23, where Lord Thomas refers to:

…particularly relating to the construction industry, engineering, shipping, insurance and commodities, there is a real concern …at the lack of case law on standard form contracts and on changes in commercial practice.

This sentence is also helpful for clarifying which aspects of the development of the law Lord Thomas is really concerned about, namely:

  1. Case law on the interpretation of clauses in standard form industry contracts, such as those developed by trade associations. In some industry sectors, parties tend to use these standards rather than draft bespoke contract terms.
  2. Changes in commercial practice in the above sectors. Lord Thomas goes on to the refer to new Financial List, where specialist judges “are expected to keep up to date with the changes in practice in the financial markets and to resolve disputes on the basis of their specialist knowledge and understanding of the markets…” This comment helps to explain what he has in mind: that judges should apply their knowledge of market practice when interpreting the contracts that parties have entered into in that market.

fossiliseWhile undoubtedly important, these topics are so specific as to be irrelevant to the areas of commercial law in which IP Draughts practises. Even if these areas of the English courts’ work become fossilised through a lack of throughput of cases, it won’t result in a “serious impediment to the growth of the common law” in relation to business contracts more generally.

Several aspects of Lord Thomas’s argument trouble IP Draughts.

  1. The law on the interpretation of contracts is much wider than the two aspects highlighted above. There are more fundamental and general questions such as whether liquidated damages clauses are enforceable (the subject of a recent Supreme Court case), or what amounts to valid consideration, or what categories of loss are recoverable for breach of contract. The law in these and many other areas continues to be developed through a large number of court cases. In fact, we are suffering from a glut of cases on Bailii, so many that it is difficult to keep up to date with them, including many reported decisions in the Commercial Court. This didn’t use to happen a couple of generations ago, when reported cases tended to be limited to those that established a new principle or had some other outstandingly important quality.
  2. In many areas of commercial practice, the judges really don’t have much insight into commercial practice in the industry sector, because the throughput of cases is too small, and would be even if all arbitrations were diverted to the courts. IP licensing is a good example. Not only are there few cases in the courts, judges can’t rely on experience gained when they were barristers, because very few IP licence agreements are drafted or negotiated by barristers in private practice.
  3. A distinction should be made between interpretation of industry-standard contracts, where the court may be strongly influenced by the interpretation of the same clause by an earlier court, and the larger number of other (non-industry-standard) contracts, where the courts tend to be reluctant to place much weight on the interpretation of similar words in an earlier contract. In other words, Lord Thomas’s comments about interpreting standard form contracts are not relevant to contracts generally. For example, this is true of his statement that “courts [give] definitive rulings on the scope and interpretation of contractual clauses.” In fact, the misguided view of some that the courts do develop standard interpretations of contract wording is often trotted out as an argument against updating template agreements or changing from old-fashioned legalistic contractual language to modern English. It is disappointing that Lord Thomas was not clearer that his remarks in this area were limited to industry-standard contracts.
  4. Contrary to Lord Thomas’s view, IP Draughts has some sympathy with the comments of Lord Denning in the Nema case, which Lord Thomas summarised as “that a commercial arbitrator was more likely to be better placed to interpret the contract in a commercial sense than a judge…” Perhaps Lord Thomas is right to dismiss this comment in relation to contract disputes in markets with which he is familiar. IP Draughts, however, can foresee many situations in which a well-chosen arbitrator, with experience of IP licensing, would be better able to reach a commercial conclusion on the interpretation of an IP licence agreement than a High Court judge. This is not to say that he would always prefer arbitration over litigation, but he thinks Lord Thomas is on dodgy ground if he is arguing that judges are better than arbitrators at interpreting the commercial intentions of contracting parties.
  5. The extracts from the lecture quoted above include references to the importance of “public understanding of the law and public debate over its application”. Elsewhere in the lecture Lord Thomas makes a similar point, where he comments that “open court proceedings enable people to watch, debate, develop, contest and materialise the exercise of both public and private power”. This theme struck IP Draughts as a weak argument to use in relation to the development of contract law. Other areas of the law, such as criminal law or defamation, seem more likely to attract public interest and debate than incremental developments in the canons of construction or other principles of contract law.

IP Draughts is left feeling that Lord Thomas probably has a valid point to make (though IP Draughts has insufficient experience of the market sectors that Lord Thomas cites to know whether this is the case), but that he weakens his argument by making it too broadly. It will be interesting to see if others, including companies that make use of arbitration in England and Wales, agree that something needs to be done to rebalance the relationship between the courts and arbitration.

 

 

 

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Filed under General Commercial, Legal policy

Who owns a Banksy mural?

art buffA recent case in the English High Court has seen a senior IP judge, Mr Justice Arnold, deciding on the ownership of a Banksy mural that was removed from the wall of a building.

The artist known as Banksy is famous for:

(a) retaining his anonymity;

(b) creating artwork in public places that could be viewed as graffiti, and sometimes has a political message, and which tends to have a high commercial value (hundreds of thousands of pounds); and

(c) causing his works suddenly to appear in unexpected places.

In recent years, a trend has developed of removing Banksy works from the walls on which they have been painted, and selling them at auction, sometimes to raise money for good causes.

The present case, The Creative Foundation v Dreamland Leisure Limited and others [2015] EWHC 2556 (Ch) concerns a mural known as Art Buff that appeared on the wall of a building in Folkestone, a seaside town in England.

art buff 2The tenants of the building, Dreamland Leisure, removed the mural, which involved taking a layer of the wall away, and sought to sell it at auction in the United States. The Creative Foundation sought an order for delivery up of the mural on the basis that it belonged to The Creative Foundation as assignee of the landlord’s interest.

In a case like this, we need to distinguish between the work of art, the copyright in the work, and the slice of wall on which it is painted. As Arnold J said in his judgment:

I should explain before proceeding further that, when I refer to the Mural in this judgment, I am generally referring both to the physical object and to the artistic work fixed on it. For the avoidance of doubt, I am not concerned with the copyright in the artistic work, which prima facie belongs to Banksy.

Thus, Arnold J found himself deciding a case on the respective rights of a landlord (lessor)  and a tenant (lessee) to materials that originally formed part of the demised premises but, when removed from the building, “revert to the status of chattels”. This is not part of the usual legal diet of an eminent IP judge.

After reviewing the cases, and the terms that could be implied into a lease of (real) property, he concluded:

In my judgment the term which is to be implied is that the chattel becomes the property of the Lessor. My reasons are as follows.

First, I consider that the default position is that every part of the property belongs to the Lessor. The Lessee only has a tenancy for a period of time. Thus it is for the Lessee show that it is proper to imply into the Lease a term which leads to a different result.

Secondly, in my view the mere fact that the Lessee is discharging its repairing obligation does not lead to the implication that it acquires ownership of such a chattel. Dreamland’s argument is based upon the Lessee’s need to be able to remove items generated by the act of repair from the premises. But that would only justify the implication of a term dealing with permission to remove (and, where appropriate, dispose of) such items. It does not justify the implication of a term transferring ownership of the items…

Thirdly, even if a term may be implied with respect to the ownership of (i) waste or (ii) chattels with no more than scrap or salvage value, it does not follow that it should be implied with respect to the ownership of a chattel with substantial value. Such a term would not be necessary, would not go without saying and would not be one that would satisfy the officious bystander test.

Fourthly, I do not consider that it makes any difference that the value is attributable to the spontaneous actions of a third party. It is fair to say that, whatever solution is adopted, one party gets a windfall. But who has the better right to that windfall? In my view it is the Lessor. …

Accordingly, I conclude that the Foundation is correct that the defence advanced in paragraph 13 of the Defence is unsustainable as a matter of law.

For the reasons given above, I conclude that the Foundation is entitled to summary judgment on its claim against Dreamland for delivery up of the Mural.

So, now we know. Though one might have expected copyright law to feature prominently in a dispute over a valuable artwork, in fact it came down to implying terms about the ownership of builders’ rubble in a routine property lease. IP Draughts wonders whether the drafters of property leases will, in future, include standard terms to deal with the ownership of works of art that are incorporated into the leased property without the knowledge or permission of either lessor or lessee.

The back story to this dispute is also interesting. It seems that Art Buff failed to sell at auction in the USA because its authenticity as a Banksy work had not been certified by a body associated with Banksy, known as Pest Control. Thus, questions of property law and copyright law were ultimately secondary to questions of provenance.

 

 

 

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Filed under General Commercial, Intellectual Property, Legal Updates

Commission payments: always button down the contract terms

300px-Flag_of_Kazakhstan.svgLast week’s reported judgment of the case of Stein v Chodiev & Ors [2014] EWHC 1201 (Comm) in the English Commercial Court prompts several thoughts.

  1. IP Draughts’ recent and slightly flippant comments on this blog about the English courts being happy to hear disputes involving Russian oligarchs were too limited in scope: the English courts are happy to hear disputes involving Kazakhstan oligarchs as well. The first three defendants in the above case, popularly known as the Trio, are famous as the billionaire founders of ENRC Plc, or Eurasian Natural Resources Corporation, which was listed on the London Stock Exchange on 12 December 2007, but which (in the neutral words of the judge in this case) has very recently been re-privatised. For a more controversial discussion of the de-listing, see this news item in the Guardian from last Summer.
  2. Leading counsel on each side of this dispute were from the same set of barristers’ chambers, Essex Court Chambers. The terms “Chinese walls” doesn’t seem quite apt when the parties are from Kazakhstan and the USA. Let us hope the clerks didn’t make any mistakes in delivering papers to the wrong counsel. If the head clerk, David Grief, is on a traditional percentage of fees, he must have been quite pleased with these briefs!
  3. The case concerned the payment of commission of several million dollars in relation to fund-raising activities. Leading counsel for the Applicant (plaintiff to you and me), Daniel Oudkerk QC, comes from the employment bar, which is less surprising that it might at first appear. Commission cases, and their close relative, bonus cases, often require a mixture of commercial law and employment law expertise. Until recently, IP Draughts’ firm was involved in a commission case in which we hired the excellent Stuart Ritchie, who became a QC during the time we were instructing him. Stuart’s chambers specialise in disputes that are at the interface of commercial and employment law. Choosing the right barrister for a case is one of the more important skills that a solicitor can have.
  4. Drafting commission terms is a highly-skilled task, which requires the drafter to think through scenarios and make sure the wording is clear and gives effect to the parties’ intentions. Sometimes, the parties have not thought enough about those intentions and need to be prompted with “what if” questions. For instance, what happens if the deal is done after the commission agreement is terminated, but the party was involved in securing the deal? What happens if the target was known to the principal before he was introduced by the other party? What happens if the deal is not structured in the way the parties anticipate when the commission terms are agreed? And so on.
  5. Sometimes, and as the defendants argued unsuccessfully was the arrangement in this case, payments are to be made at the discretion of the employer or principal. Court cases can turn on whether the discretion has been exercised in a reasonable way.
  6. chicken feedWhen dealing with the super-rich and super-powerful, it is very easy for the person seeking the commission to become a kind of courtier at the principal’s court. In other words, rather than rely on well-written contracts, the courtier accepts the assurances of the principal and hopes that, by keeping the principals’ goodwill, he will get the payments he was hoping for. After all, the amounts at stake are mere “chickenfeed” to the principal. Perhaps it is just the cases that IP Draughts sees, but in his experience this is a very high-risk strategy. It gives the courtier no definite protection (unless the court can be persuaded – see below) from the principal who no longer sees the value in the courtier, perhaps because his mind has been changed by the comments of others at court. IP Draughts has no knowledge of whether this happened in the present case, but notes that the commission terms were kept unwritten at the request of the defendants in this case, for reasons that were never really explained.
  7. Despite the relative lack of written evidence of the contract terms in the present case, the court found for the applicant. It seems he impressed the judge in the witness box, unlike the Trio. It is surprising to IP Draughts how many witnesses in English commercial cases fail to get the basic technique right – be consistent, don’t overstate, admit weaknesses, be reasonable, demonstrate trustworthiness. Perhaps different techniques of persuasion are needed in other countries’ courts, but IP Draughts doubts it.

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Filed under Commercial negotiation, Contract drafting, General Commercial