England and Wales Patents County Court

IN THE PATENTS COUNTY COURT

		The Rolls Building, 7 Rolls Buildings London EC4A 1NL
		21/10/2011

His Honour Judge Birss QC :

1. This is the trial of a preliminary issue in a patent action concerning UK patent GB 2 340 073 entitled "Business forms with adhesive closure". The issue is: who owns the patent? The case arises as a Part 20 claim in the main patent proceedings. The parties divide into three camps.
2. In the main proceedings Mastermailer Stationery Ltd are the claimant. They allege the patent is invalid and claim revocation. That company is one of a number of Mastermailer companies referred to in the evidence. As a whole they can be referred to as just "Mastermailer" unless it is necessary to distinguish between the companies. One camp is the Mastermailer camp.
3. Jonathan Horler is the inventor of the patent. The patent was applied for on 7^th July 1998 and granted on 1^st May 2002. The patent was granted to two companies (Formpro Ltd and Bowater Business Forms Ltd) but nothing turns on that. By July 2009 Mr Horler owned the patent himself. On 5^th February 2010 Mr Horler assigned the patent to his company Mail a Doc Ltd. Mr Horler and Mail a Doc Ltd are the second camp. They contend that the patent belongs to them. To be exact they contend the patent should be in the name of Mail a Doc Ltd. For convenience I will refer to Mr Horler and Mail a Doc together as "Mail a Doc" unless it is necessary to distinguish between them.
4. Everseal Stationery Products Ltd ("ESPL") is part of the third camp. That company is now wholly owned by a holding company called EU Mailers Ltd which also owns another company Everseal Mailers Ltd. Before EU Mailers bought them, the two Everseal companies were owned and run by the Black family (Mr James Black and Mr Steven Black are referred to in the evidence). As I understand it the Black family are not the owners of EU Mailers. It is owned by other investors. Nothing turns in the ownership of EU Mailers or the Everseal companies. For convenience I will refer to this camp (including EU Mailers) together as "Everseal" unless it is necessary to distinguish between the individual companies and people involved. Everseal contend that ESPL is the true owner of the patent. Everseal contend that the patent was purchased from Mail a Doc for £80,000.
5. The question is whether Mail a Doc Ltd or ESPL is the correct defendant to Mastermailer's claim for revocation of the patent. This point was ordered to be tried as a preliminary issue by the order of Mr Justice Arnold sitting in the Patents County Court made on 7^th April 2011. Deciding this question as a preliminary issue was a good idea because Mail a Doc have settled their differences with Mastermailer whereas Everseal have not. Thus if Mail a Doc Ltd owns the patent and should be the defendant to the main action, the action will cease because those parties are agreed. Whereas if ESPL owns the patent and is the correct defendant, the revocation action will continue. Clearly everyone needs to know where they stand.
6. The case came before me on Tuesday 4^th October 2011. Mr Mark Chacksfield appeared for the Part 20 claimants (Mail a Doc) instructed by Bond Pearce. Mr Robert Deacon appeared for ESPL, the Part 20 defendant, instructed by Hansel Henson. Mastermailer did not appear and were not represented.
7. Mail a Doc filed one witness statement, from Mr Horler himself. It explained how the various transactions arose and what happened. Mr Horler was available for cross-examination but Mr Deacon did not see a need to cross-examine him.
8. Everseal filed one witness statement, from Diarmuid Foghlu. Mr Foghlu is a business consultant who has advised the Black family, the Everseal companies and, when EU Mailers took over, that company as well. He did not profess any particular knowledge of the business mailing market to which this case relates but that does not matter. He clearly had considerable general commercial experience and my impression of him was that he was a shrewd businessman. I can well understand why Everseal might wish for his assistance in business matters generally. He was cross-examined by Mr Chacksfield. The cross-examination exposed the limitations of Mr Foghlu's evidence. Essentially he was simply telling the story from the Everseal point of view, however some of his evidence about motives for certain acts at certain times was clearly a hindsight reconstruction – which he accepted – but was also not in accordance with the contemporaneous documents. The important instance of this was Mr Foghlu's statement, at paragraph 8, which gave reasons why certain payments had not been made by Everseal at certain points in time. The reasons Mr Foghlu gave were related to concerns that Mail a Doc had failed to effect an assignment and such like. In fact the contemporaneous documents show that that was not the reason. The documents show that Everseal were short of money at the time, especially because of the legal costs associated with the main patent action. I thought Mr Foghlu was an entirely honest witness and was trying to assist the court at all times. The cross-examination properly demonstrated that I need to take care with some of his evidence to recognise it is a hindsight reconstruction.

The Facts

9. The basic facts are common ground. In July 2009 the then proprietor Mr Horler granted Everseal Mailers Ltd an exclusive licence under the patent. In 2010 there were negotiations between the Mail a Doc camp and the Everseal camp whereby Everseal would buy the patent. Various proposals were discussed (see e.g. an email between Jon Horler and Steve Black on 3^rd February 2011). Everseal Mailers Ltd was, I think, under some financial pressure. In any event Everseal decided to set up a new company ESPL as the vehicle to buy the patent. ESPL had no money but also had no liabilities. So it was in a weak financial position.
10. On 5^th February 2010 Mr Horler executed an assignment of the patent to Mail a Doc Ltd. However at that stage nothing was registered with the Comptroller and so the Register of Patents still showed Mr Horler as proprietor.
11. On 22^nd February 2010 the agreement was reached between Mail a Doc and Everseal to sell the patent to Everseal. This was embodied in a written agreement signed on that date. The agreement is at the heart of this dispute. It had four parties: Mail a Doc Ltd (the assignor of the patent), Everseal Mailers Ltd (the former licensee), ESPL (the assignee of the patent) and Mr Horler (the "consultant"). The agreement included the following major provisions:

i) An assignment of the patent from Mail a Doc Ltd to ESPL expressly in consideration of the payment of £80,000 (clause 2.1). The assignment included a covenant of further assurance (clause 8) that the parties would do all acts necessary to secure the vesting of the assigned rights to the assignee (ESPL) and to give full effect to the agreement.

ii) Termination of the licence agreement (which of course was no longer needed since an Everseal company was now the proprietor) (Clause 2.2);

iii) Payment terms, £5,000 on the date of execution and £5,000 per month for 15 further months (clause 4.1) making a total of £80,000;

iv) Interest at 5% above base on outstanding amounts (clause 4.3)

v) Provisions for Mr Horler to provide consultancy services to ESPL (clause 5). This included details such that the first 16 days of consultancy, which Mr Horler was obliged to provide, were free (plus expenses) but further consultancy if required would be charged at £500 per day plus expenses.

vi) Provisions prohibiting ESPL from assigning the patent until all the sums due had been paid (clause 7.1) and allowing Mail a Doc Ltd to demand reassignment of the patent in certain circumstances if money was outstanding (clause 7.2).

12. It is the effect of clause 7.2 which gives rise to this dispute. Clause 7.2 provides:

"If any three consecutive sums under this Agreement remain outstanding for more than 90 days cumulatively the Assignee shall, on demand by the Assignor, forthwith provide to the Assignor an executed assignment of the patent back to the Assignor or its designate in registerable form. The right to reassignment shall be without prejudice to any other remedy to which the Assignor may be entitled by law for breach of this Agreement."

13. On the same day the agreement was signed, Mastermailer started their claim in the Patents County Court to revoke the patent. On the claim form the named defendant is Mr Horler. No doubt this was for the obvious reason that at that time he was named as proprietor on the register even though he had assigned the patent to Mail a Doc Ltd and Mail a Doc Ltd had just assigned it to ESPL.
14. It is clear that the relationship between Mastermailer and Everseal (and in particular the Black family) is and was a poor one. The Blacks founded Mastermailer and believe they were ousted in a boardroom coup in 2009. They then founded Everseal. In any event for some reason Mastermailer wish to revoke the patent. Mastermailer's motives are not relevant and are not explained in the evidence. Presumably Everseal regard the patent as protecting part of their business from competition from Mastermailer but I do not know.
15. Once the February agreement was entered into the first payment was made satisfactorily.
16. There was an exchange of emails on 26^th February about registration of the assignment. In the emails James Black asked the patent attorneys not to file anything with the UKIPO for "a few days" because they (Everseal) were thinking of changing the name of the company which would be the assignee (ESPL) and were still setting up the new company. Mr Horler says he heard nothing more about this registration issue (at that stage) and I have no reason to doubt his evidence.
17. The March payment was fine and the April payment was made albeit a little late. However the May payment (due 22^nd May) was not made. The reasons why can be seen from an email from Steve Black (albeit on James Black's Everseal Mailers email account) to Jon Horler on 9^th June 2010. Extracts are as follows:

"Hi Jon

As you know we have been considering the viability of the continued purchase of your patent.

This is entirely due to the escalating legal costs in the fight with Mastermailer over the validity of the patent.

…

With the costs at their present level we feel we cannot continue this fight with Mastermailer over the patent, even though we are 100% right.

Mastermailer will simply win by having more money and generating monthly profits from [a particular customer].

We are prepared to continue defending the patent, but we are unable to do under the current repayment schedule of £5,000 per month. There simply isn't enough money to go around.

We suggest you consider giving a holiday period initially for 6 months and then to review the situation. Obviously if Mastermailer back down (which is likely) or the court case is heard earlier then we reinstate the monthly payments.

This saving will enable us to continue the fight against Mastermailer and make available the necessary funds for the legal bills.

Without this monthly saving we would have no option but to return the patent to you.

I'm sorry to have to write to you in this manner but I really do feel that with the repayment holiday we can all succeed.

…"

18. Thus when Mr Foghlu stated in his witness statement that the reason for the payments being "delayed" was about the failure to register assignments, that was a reconstruction in hindsight. At the time it is clear that Everseal were saying they simply could not afford to fight Mastermailer in the court and pay the instalments. The message also makes clear that Everseal understood the effect of clause 7.2 to be that if they did not make the monthly payments then at some point the patent would have to be returned to Mail a Doc.
19. I should also refer at this stage to a statement of Mr Alexander Nikolic-Dunlop dated 7^th October 2010 and apparently provided in support of an application by ESPL to be joined as a defendant to the main action. Mr Nikolic-Dunlop is one of the two owners of EU Mailers. EU Mailers bought ESPL on 16^th September 2010. His statement states at paragraph 11 that once ESPL knew of the patent proceedings it was extremely concerned. It did not consider the attack on the patent had merit but did not wish to continue paying for a patent which might subsequently prove to be worthless and it ceased making monthly payments due to Mail a Doc under the Horler patent. While Mr Nikolic-Dunlop's proposed motive is closer to the contemporaneous email than the motive proposed by Mr Foghlu, it is also a hindsight reconstruction since his company did not buy ESPL until later. I will rely on the email from James/Steve Black rather than the statement of Mr Nikiloc-Dunlop.
20. There was (I think) some contact between Mr Horler and Mr Black after the 9^th June email but in any case it is clear that Mr Horler did not accept Everseal's proposals.
21. The June payment (due 22^nd June) was not made and on 22^nd June 2010 the case came before HHJ Fysh QC for a case management conference. The question of proper parties clearly arose. Judge Fysh ordered that the defendants were to be Mr Horler, Everseal Mailers Ltd and James Black. He refused to order ESPL to be made a defendant but directed that they would be named as a defendant if they became registered proprietor. Although I have not been provided with the skeleton arguments from that hearing, nor is there a record of the learned judge's judgment, one can see why he might make the order he made. At that stage the register showed Mr Horler as proprietor and (I presume) Everseal Mailers Ltd as exclusive licensee. None of the subsequent transactions had been registered. Moreover by now Everseal and Mail a Doc were not seeing eye to eye.
22. Mr Foghlu explained in his oral evidence that Everseal were very worried about the outcome of the case management conference because unless ESPL were made a defendant, they felt unable to defend the patent against Mastermailer. Mr Foghlu also explained in his oral evidence that at around this time the Black family were very worried that Mr Horler would start talks with Mastermailer. They wanted to try and find out if Mr Horler was making a deal with Mastermailer. In the event their fears were justified because (unknown to Everseal) on 6^th July Mr Horler met with Patrick Rogers of Mastermailer and started talks with him.
23. Mr Horler explained that his reasons for talking to Mastermailer were that he did not want to get involved in legal battles, let alone over a patent he was not being paid for and he felt disillusioned with the whole arrangement with ESPL. I accept his evidence. The discussions led to various heads of agreement and eventually to an agreement made on 5^th August 2010.
24. On 13^th July Steve Black sent another email to Jon Horler about the payments. This one proposed a way forward in which no further monthly payments would be made while the patent was under threat from Mastermailer, the cessation of the payments would not be subject to the payment default clause (i.e. clause 7.2) and professional fees incurred by Everseal defending the patent would be deducted from the outstanding amount owing. Again it is clear Mr Horler did not accept these proposals.
25. Meanwhile the July payment was not made by ESPL.
26. On 4^th August Mr Horler was worried that ESPL would try to register the assignments giving them title to the patent and so he purported to have the patent registered to a company called ACH Mailers Ltd, of which his wife is a director. He wanted to do this in advance of Mail a Doc Ltd giving ESPL notice under clause 7.2 and he did not tell ESPL. Mr Horler stated in his statement that he acknowledged that this was an inappropriate thing to have done as he was not the owner of the patent at the time. In the end nothing turns on this. All it achieved was more confusion.
27. On 5^th August two things happened:

i) Mail a Doc Ltd and Mr Horler entered into an agreement with Mastermailer Holdings Plc which consists of three documents. A master document entitled Patent Assignment Agreement and two further documents, an Assignment of Contract Debt and an Assignment of Patent.

ii) Mail a Doc Ltd sent a notice pursuant to clause 7.2 of the agreement requiring ESPL to reassign the patent to Mail a Doc.

28. The agreement with Mastermailer bears some explanation. This was the fruition of the talks initiated between Mr Horler and Mastermailer in July. The agreement as a whole has two distinct aspects, one relating to the contract debt (and future instalments) and the other relating to the patent. Under the agreement the debt owing by Everseal under the February agreement (i.e. at that stage the three unpaid monthly payments totalling £15,000) was assigned to Mastermailer along with the right to receive the remaining monthly payments. Consideration for the assignment of the contract debt (including the right to future instalments) was £15,000 paid by Mastermailer to Mail a Doc. Also under the agreement Mail a Doc Ltd and Mr Horler warranted that they were entitled to the patent pursuant to clause 7.2 and agreed that they would serve a demand for the patent on Everseal. The agreement also contains an assignment of the patent to Mastermailer from Mail a Doc which was to be executed and held in escrow. If Mastermailer end up with the patent at the end of this process a further £25,000 will be paid by Mastermailer to Mail a Doc. On the request and direction of Mastermailer, Mail a Doc will use its reasonable endeavours to bring proceedings to enforce Mail a Doc's right to the patent under 7.2. Otherwise Mail a Doc will play no part in the main patent action.
29. Mr Deacon criticised this arrangement between Mail a Doc and Mastermailer. He contended that it meant Mail a Doc were not entitled to equitable relief, in particular the remedy of specific performance. Mr Deacon pointed to an email from Patrick Rogers to Jon Horler which enclosed heads of agreement leading up to it which described the arrangement as their "joint plan". The arrangement between Mail a Doc and Mastermailer is clearly a joint plan and, given the hostility which exists between Everseal (and the Blacks) and Mastermailer I can understand why they might feel aggrieved by it. At this stage however I will leave to one side Mr Deacon's submission that it disentitles Mail a Doc to equitable relief.
30. Thus it can be seen that the notice under clause 7.2 on 5^th August from Mail a Doc was served pursuant to the agreement with Mastermailer, albeit Everseal did not know that at the time. In any case, ESPL did not reassign the patent to Mail a Doc Ltd.
31. On 10^th August Mail a Doc sent another notice under clause 7.2. However again Everseal did not assign the patent.
32. On 16^th August Mastermailer sent a notice of assignment of the debt to Everseal. The letter includes a copy of the assignment of the debt signed by Mr Horler on behalf of Mail a Doc Ltd. The letter calculates the sum due with interest at the contract rate and states: "For the avoidance of doubt, a further instalment of £5,000 plus VAT falls due on 22^nd August followed by another nine instalments in the same amount." The letter ends by stating that failure to pay within seven days will result in legal action without further notice against ESPL and Everseal Mailers Ltd as guarantor.
33. Thus by now Everseal will have realised that Mail a Doc had done a deal with Mastermailer. No payment was made and the patent was not assigned.
34. On 22^nd August another payment fell due and was unpaid.
35. On 23rd August Mastermailer served a Statutory Demand on Everseal under s123(1)(a) or s122(1)(a) of the Insolvency Act 1986. The Statutory Demand states that the debt was incurred pursuant to the February agreement, that the consideration for the debt was the transfer of the patent, and that the creditor has failed to pay four instalments. The total due with interest at the contract rate is £23,665. The letter ends by stating that if the debt is not paid within 21 days after service, Mastermailer will commence winding up proceedings against both ESPL and Everseal Mailers Ltd.
36. On 15^th September Mail a Doc repeated their demand for assignment of the patent. This was in a letter to Everseal's then solicitors Prettys. At the same time Everseal applied to the Comptroller to register the February agreement (and the earlier assignment from Mr Horler to Mail a Doc). In the end the Office decided not to register anything further pending resolution of this dispute.
37. On 16^th September Mastermailer wrote to ESPL pressing for payment of the debt and pointing out the further nine instalments which would become due. The letter states "The only way in which you can seek to mitigate this liability is to return the patent GB 2340073 to Mail a Doc Ltd forthwith. I understand that you have been requested to do this by Mail a Doc but that you have so far refused." The letter points out that the next payment will be due on 22^nd September and states that if it is not paid when due, a further statutory demand will follow.
38. On 17^th September Everseal paid the outstanding debt to Mastermailer and Mastermailer accepted the payment. Mr Foghlu's unchallenged evidence is that the payment was in fact made to Mastermailer Stationery Ltd and not Mastermailer Holdings Ltd following an enquiry by ESPL's solicitors at the time (Prettys) about the identity of the bank account to be paid into.
39. After that ESPL continued to make payments of the instalments due under the agreement. One payment (January 2011) was 3 days late as a result of the weekend but a statutory demand was served on ESPL by Mastermailer for that payment. That January statutory demand was expressed to be in relation to a debt incurred pursuant to the 22^nd February agreement. Mr Foghlu's unchallenged evidence was that Mastermailer had been accepting and chasing payments under the 22^nd February agreement and then without explanation changed their position in March 2011 when their solicitors wrote two letters stating that payments could not be accepted if they were tendered in respect of the monthly payments arising from the 22^nd February Agreement.
40. ESPL has never assigned the patent back to Mail a Doc.

The rival parties' claims

41. Mail a Doc's case is that ESPL is obliged by clause 7.2 to execute a reassignment of the patent back to Mail a Doc. They claim specific performance of the contract to achieve that objective. Their case is simple. They argue that by 5^th August 2010 the clause was engaged because by that time three consecutive sums under the agreement remained outstanding and the cumulative total number of days the payments were outstanding was more than 90. Mail a Doc's calculation is that by 5^th August the relevant number of days was 133 (essentially just over two months worth for the May payment, just over one month's worth for the June payments and just over a week for the July payment). Thus the patent should be assigned to Mail a Doc.
42. Everseal deny this. First they contend that clause 7.2 is not engaged at all. They argue that the way in which Mail a Doc calculate the days is wrong. If the relevant days are calculated in a manner Everseal contend for then the number by 5^th August was only 11 or 12. This depends on the true construction of clause 7.2. Next Everseal contend that even if Mail a Doc are correct about the way in which clause 7.2 works and therefore correct that it was engaged, there are a number of further defences.
43. First Everseal contend that clause 7.2 is a penalty clause and is unenforceable under the legal doctrines relating to such clauses. Second Everseal contend that the doctrines of waiver and affirmation apply. They contend that the right to enforce the clause has been waived or Everseal's ownership of the patent affirmed because, in the full knowledge that the payments were not made, Mail a Doc assigned the debt and right to future instalments to Mastermailer and stood by while Mastermailer demanded and accepted the payments from Everseal. Third they rely on estoppel, essentially on the same grounds as the argument about waiver or affirmation. Fourth they contend that specific performance should not be ordered for two reasons. One reason is that damages would be an adequate remedy. The instalments have been paid in full plus contractual interest where necessary. They also contend that there was no loss suffered as a result of the delayed three payments. The other reason relied on is Everseal's contention that Mail a Doc do not come to the court with "clean hands" given their joint plan with Mastermailer and so are not entitled to the equitable remedy of specific performance. Finally Everseal rely on the doctrine of relief against forfeiture. They argue that this is an appropriate case in which to engage the concept. That involves consideration of the conduct of the applicant for relief, how grave the breaches were and the disparity between the value of the property forfeited and the damage caused by the breach.
44. In response, Mail a Doc contend that clause 7.2 is not a penalty clause, it is a forfeiture clause. Thus the law of penalty clauses does not apply while, says Mail a Doc, on the facts of this case relief against forfeiture should not be given. That is essentially because this was a commercial contract negotiated with the benefit of legal advice on both sides and the breach was wilful. Mail a Doc contends that relief against forfeiture is not available when a breach was deliberate or wilful (citing Lord Wilberforce in Shiloh Spinners v Harding [1973] AC 691 at 723) and that relief cannot be given where the clause in question was one in which time was of the essence (Union Eagle v Golden Achievement [1997] AC 514 at 523). They submit both apply in this case. Also Mr Chacksfield cited the words of Lord Hoffmann in Union Eagle case warning that in business contexts the parties should know with certainty that the terms of their contracts will be enforced and that the idea that relief against forfeiture was an unlimited and unfettered jurisdiction was a beguiling heresy.
45. As regards waiver, Mail a Doc contend that the type of waiver relied on is a waiver by estoppel or representation – where one party acts so as to represent to the other that it will not enforce its strict legal rights (citing Lord Cairns in Hughes v Metropolitan Railway (1877 2 App. Cas. 439). They submit that the act relied on must be communicated to the other party and argue that Everseal's case does not stand up to scrutiny. The acts relied on are the assignment of the debt to Mastermailer and what Mail a Doc call "the alleged 'standing by' whilst Mastermailer Plc demanded and Everseal paid, the further instalments". Mail a Doc submit that the right under clause 7.2 was exercised on 5^th August but Everseal did not know about the debt assignment until after that – on the 16^th August. Mail a Doc also contends that there is no basis to suggest that when making the payment on 17^th September Everseal thought that Mail a Doc had waived its rights. "Indeed the position was clearly and exactly to the contrary, and has remained such ever since."
46. On estoppel, Mail a Doc contend it is coterminous with waiver/affirmation and on specific performance, Mail a Doc deny that the remedy should be refused on discretionary grounds. They deny that the arrangements with Mastermailer would justify that course.

The issues

47. It seems to me that a convenient way to break down the issues which fall to be decided is to consider the following:

i) The true construction of clause 7.2 both in terms of the triggering event and its place in the contract as a whole. If Everseal are right then the case does not get off the ground.

ii) The waiver and affirmation point and in particular the effect of the acceptance of Everseal's payments by Mastermailer. If Everseal's position is right then again nothing further needs to be considered.

iii) Whether clause 7.2 is a penalty or forfeiture clause? If it is a penalty then Mail a Doc did not deny it would be unenforceable. Of course they deny it is a penalty and contend it is as forfeiture clause instead.

iv) If clause 7.2 is a forfeiture clause, is relief against forfeiture available in this case?

v) If relief against forfeiture is not available, the only realistic point left for Everseal is whether Mail a Doc should be denied equitable relief. This may involve the issue of whether damages are an adequate remedy and involves the question of "clean hands".

The true construction of clause 7.2

48. The parties do not agree about how to calculate relevant days under clause 7.2. Everseal contend that a day is only a relevant day if it is a day on which three consecutive sums payable remain outstanding. Thus a day on which only one sum is outstanding is irrelevant. This has the result, as Mail a Doc point out, that if Everseal stopped making any payments, the clause would not be triggered until about 5 months after the first payment was not made. That is because one needs to wait until three payments have been missed before starting to count relevant days. Mr Chacksfield submits that this would be an absurd result because it would be much too generous to Everseal. After all he points out the clause was inserted to give protection to Mail a Doc given the concern that Everseal might have difficulties paying. Mr Chacksfield also submits that this would have the effect that one could skip two payments and leave them outstanding as long as one wanted, the clause would never be engaged and that could not be right.
49. Mail a Doc's primary construction of clause 7.2 had two aspects. A day was relevant if it is a day on which a payment was outstanding and days when payments had been outstanding still remained relevant even when the payment had been made. I do not accept that latter argument since it seems to me that, whatever it means, the clause requires three consecutive payments to remain outstanding in order to trigger the right to reassignment.
50. Mail a Doc's alternative case was to contend simply that a relevant day is a day on which a payment is outstanding. Thus once one payment is outstanding the days on which it is overdue start to mount up. When another (consecutive) payment is overdue, its days also mount up and the word "cumulatively" means that the two numbers are added together. When a third payment is overdue its days are also added to the total and when the total is over 90, the clause is triggered. In effect the clause really means that when three consecutive payments are indeed overdue, the clause is likely to trigger given that by the third one, the oldest will be two months late and the middle payment, one month late, giving 90 odd days on the rough and ready basis of 30 days being in a month. A problem with this interpretation is that in many ways the 90 days figure is unnecessary since, read Mail a Doc's way, the clause triggers more or less automatically by the time three consecutive payments are overdue.
51. Leaving aside Mail a Doc's primary construction, there are still difficulties with either of the other two interpretations advanced by the parties. Mr Deacon contended that his clients' approach was the right one and was simply what the words meant taken at face value. It is true that one can see difficulties with each side's approach but it seems to me that the clause is in fact tolerably clear. Mail a Doc's alternative construction is the right one. Three payments have to be outstanding but a relevant day is a day on which a payment remains outstanding. That is what the word "cumulatively" is intended to achieve. The accumulation is to aggregate outstanding days for one payment together with days for another and for a third. Once the total passes 90 days, the clause is triggered. Thus on that basis it seems to me that Mail a Doc had the right to call for a reassignment when they did so, on 5^th August 2010.
52. However before leaving clause 7.2, it seems to me that I need to consider the purpose and effect of that clause in the contract as a whole. Mr Deacon submitted that: "the commercial purpose of the clause is to provide a mechanism to rescind in the event of serious default …". The serious default he had in mind was based on his interpretation of the clause but in any event it seemed to me that Mr Deacon had raised an important question in relation to the commercial purpose of the clause (leaving aside the argument about what exactly were the conditions necessary to trigger it).
53. If the clause was triggered, ex hypothesi, the last three payments must not have been made. What happens then? Well Mail a Doc have the right to require Everseal to reassign the patent. Equally and although the contract does not say so explicitly, it is manifest that if Everseal did assign the patent then and there, Everseal would no longer be obliged to pay. They would certainly not be obliged to pay future instalments and it seems to me that they would also in all fairness be relieved of the debt already owing – i.e. the three unpaid payments. Clause 7.2 (leaving aside any question of penalty clauses and relief against forfeiture) is a perfectly understandable form of self help remedy available to the seller of the patent. If the buyer stops paying the instalments of the purchase price, he can be compelled to give back the patent. I can see questions which might arise about what might happen in those circumstances to the payments which had already been made but equally one can see that businessmen can perfectly sensibly come to an agreement which simply leaves those paid over sums where they fall. However on any view it seems to me that looking at the contract as a whole, on its true construction, the obligation to pay the outstanding debt and any future instalments was not intended to survive reassignment of the patent.
54. Mail a Doc pointed to the words at the end of clause 7.2 which provided that "The right to reassignment shall be without prejudice to any other remedy to which the Assignor may be entitled by law for breach of this Agreement." They contended that these meant that the clause did not prevent Mail a Doc enforcing the payments terms. I accept that up to a point. It seems to me those words are intended to and do make it clear that, for example, if the clause was triggered and the right to reassignment existed, the existence of that right did not mean that Mail a Doc had to exercise it and could not use other legal remedies open to them. So for example Mail a Doc would be entitled to sue for the debt and use the Statutory Demand procedure etc. if they wished. But that does not mean that the words at the end of clause 7.2 are intended to give Mail a Doc the right to end up with the patent as well as the entire purchase price.
55. In my judgment Mr Deacon's submission is near the mark and reveals an important aspect of clause 7.2 in its context of the contract as a whole. The commercial purpose of the clause is to provide a mechanism to bring the purchase to an end in the event of a relevant default. I will avoid using the term "rescind" because the contract as a whole had other aspects (consultancy and the termination of the former licence) and I am sure the contract did not mean the licence would be reinstated if the patent was reassigned because the payments had not been made. However it seems to me that considered as a whole, the obligations to pay for the patent under the contract cease if the patent is reassigned. The clause did not purport to create a mechanism whereby Mail a Doc had the right to obtain all the money due under the contract and the patent as well. Even if the overdue sums were the last three instalments (and assuming in Mail a Doc's favour that the sums already paid would remain with them) if at that point Everseal failed to pay the last three instalments, Mail a Doc could still insist on reassignment of the patent. However if they obtained reassignment they would not then be entitled to the outstanding payments.
56. An important aspect of the clause is that it gives Mail a Doc the right to require reassignment. The right is Mail a Doc's and they are the party with control. Once the clause is engaged and Mail a Doc acquire the right to reassignment, they are entitled to insist on reassignment even if Everseal offer to pay the outstanding amounts with interest. However what happens to the right if an offer to pay the outstanding amounts with interest is accepted by Mail a Doc? It seems to me that the answer is obvious: the right to require reassignment comes to an end. Clause 7.2 has fulfilled its purpose by giving Mail a Doc a tool to encourage Everseal to pay and if they pay, that is the end of the matter.
57. Finally it is worth dwelling on the possible effect of assigning the debt. The fact that the debt can be assigned, along with the right to future instalments, cannot mean that a situation can be created in which the separation of the self help remedy created by clause 7.2 (reassignment) from the usual remedies for unpaid debts somehow snookers the other contracting party so that they can be forced into parting with the patent and still paying all the sums due under the contract to buy the patent. If Mail a Doc did not have the power to do that before they assigned the debt to Mastermailer, Mail a Doc and Mastermailer together cannot have acquired such a power as a result of an assignment of the debt.

Waiver / affirmation

58. It seems to me that one way to analyse what happened in this case is as follows. In my judgment, on the 16^th September 2010, Mail a Doc had the right to demand reassignment of the patent. The sums were outstanding and clause 7.2 had been triggered. On that date Mail a Doc also would have had the right to employ the statutory demand procedure to enforce the debts. As it happens in this case that right had been assigned to Mastermailer and they were indeed employing that remedy. At that date, 16^th September 2010, Mail a Doc were entitled to choose which remedy they wished to employ. It was not a matter which Everseal could select. Under the contract, if Mail a Doc insisted on receiving the patent, they were entitled to turn down any offers of money from Everseal.
59. However on 17^th September Everseal proffered the outstanding sums and they were accepted. Although of course the money was offered to and paid to someone else rather than Mail a Doc, that seems to me to be a distraction. From Everseal's point of view, they offered to pay and paid the money which was due as a contract debt at that time. In substance the party with whom they had contracted was affirming the contract by accepting the money. At that point the right to demand reassignment under clause 7.2 came to an end.
60. What would an objective construction of the acceptance of the payments on 17th September be from the point of view of a party in Everseal's position? In my judgment there is only one answer. Such a party would understand that the contractual payment terms were being affirmed by the receiving party. The breaches - which were a failure to pay - had been remedied. The purchase was not being brought to an end and the obligation to pay further instalments was therefore to be complied with. To regard the failure to reassign as a separate breach from the failure to pay seems to me to be incorrect. The two obligations - to pay and to reassign - were linked. Although Everseal did not have the right to choose which one to comply with, having offered to comply with one (payment) and crucially, having seen that offer be accepted by the receiving party, Everseal no longer had an obligation to reassign. In the language of waiver and affirmation, accepting the payment waived the right to call for reassignment and affirmed Everseal's ownership of the patent.
61. It seems to me that this is a fair and correct analysis of what happened and is sufficient to dispose of the Part 20 claim.
62. Mr Chacksfield submitted that waiver or affirmation could not arise because at the date of the 5^th August 2010 notice under clause 7.2, Everseal were not aware of the assignment of the contract debt. That argument is put forward to meet a submission that the assignment of the contract debt itself represented a waiver of Mail a Doc's contractual rights. I must say I can see the force of the argument that by handing over control of the debt claim to someone else, it could fairly be said that Mail a Doc had indeed affirmed the payment terms in the contract and although Everseal will not have known that on 5^th August, by 16^th August they will have realised what was happening. However I prefer not to approach the matter in that way. I have based my decision on the acceptance of the outstanding sums on 17^th September and not on the effect of the debt assignment itself.
63. A further point which it seems to me may support Everseal's position but which I believe is unnecessary to rely on is that the statutory demand itself was worded in such a way as to be clearly aiming to enforce the contract. The sums due were sums expressly under the contract and the statutory demand on its face made it clear that the relevant party (actually Mastermailer) was pressing for performance of Everseal's obligations under the contract.
64. I also note that on 16^th September Mastermailer's letter suggested that the only way Everseal could mitigate the breach was by assigning the patent to Mail a Doc. In my judgment at that stage Mail a Doc/Mastermailer had the right (leaving aside the other issues of penalty / forfeiture clauses and so on) to insist on reassignment of the patent rather than payment of the money. They were entitled to put the position to Everseal in the manner in which Mastermailer did. However the very next day, the payment was proffered and Mastermailer accepted it. Even at that stage I am prepare to entertain the possibility that in some circumstances it might have been possible to unwind that acceptance immediately, perhaps on the basis that the money had been accepted by mistake at that stage. However nothing of the kind took place and the further instalments were then accepted by Mastermailer. Indeed if there was any doubt (which I do not accept) that the contractual payment terms were being enforced as they stood it, the January statutory demand which, as Mr Foghlu pointed out, was expressed to be in relation to a debt incurred pursuant to the agreement, put that beyond doubt.
65. The fact that Mail a Doc / Mastermailer may have changed their mind and have refused to accept the final two instalments due under the contract seems to me to change nothing. By that time the contract had been affirmed and the right to call for a reassignment was spent.
66. On this basis I do not need to consider the other defences arising which were prayed in aid by Mr Deacon.
67. The only other matter I will mention is the allegation of a lack of "clean hands" by Mail a Doc and Mastermailer as a result of the joint plan by which the debt was assigned and so on. It seems to me that if the joint plan was in fact a plan to somehow aim to acquire the patent and the full contract price, which would not have been available to Mail a Doc alone, then the allegation of unclean hands might have some merit. However I note that clause 9 of the Heads of Agreement between Mr Horler and Mr Rogers of Mastermailer dated 27^th July 2010 stated as follows:

"In the event that [ESPL] refuses to re-assign the Horler patent back to Mail a Doc and instead relies on remedying its breach of contract [Mastermailer] reserves its right to have the Horler patent struck out (subject to clause 3 above)."

68. It seems to me that this indicates that Mr Horler and Mr Rogers could see that if ESPL remedied the breach of contract by paying off the debts, then the patent would remain with ESPL. In that event Mastermailer were making clear that they would press on with the revocation action (that is what "struck out" refers to). On this basis all the joint plan between Mail a Doc and Mastermailer amounted to was a mechanism for applying pressure to Everseal which was no more than the pressure Mail a Doc were entitled to employ if they wished, pursuant to the contract. Mastermailer's use of the Statutory Demands does appear to have been fairly aggressive but Mail a Doc would have been entitled to use that approach if they had wished to. Accordingly I would have rejected the allegation of unclean hands on the part of Mail a Doc and Mastermailer.

Conclusion

69. In my judgment Mail a Doc are not entitled to compel Everseal to reassign the patent. The Part 20 claim will be dismissed. ESPL is entitled to be named as defendant to the main revocation claim.