Global Flood Defence Systems Ltd & Anor v Johann Van Den Noort Beheer BV & Ors [2016] EWHC 99 (IPEC)

Case No IP14M01776[2016] EWHC 99 (IPEC)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
INTELLECTUAL PROPERTY ENTERPRISE COURT
Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 01/02/2016
Before
HIS HONOUR JUDGE HACON
Between
GLOBAL FLOOD DEFENCE SYSTEMS LIMITEDClaimantsUK FLOOD BARRIERS LIMITEDClaimantJOHANN VAN DEN NOORT BEHEER BVDefendantsJOHANN HEINRICH REINDERT VAN DEN NOORTDefendantFLOOD CONTROL INTERNATIONAL LIMITEDDefendant
Michael Hicks (instructed by Shakespeare Martineau) for ClaimantsTom Alkin (instructed by DTM Legal LLP) for DefendantsHearing Hearing dates: 8-9 December 2015
JudgmentJudge Hacon :Introduction
[1]These proceedings concern devices used as a defence against flooding, in particular a product known as the ‘self closing flood barrier’ or ‘SCFB’. It was developed by the first defendant (‘BV’) in around the early part of 2008. The second defendant (‘Mr van den Noort’) is a director and shareholder of BV and at least until recently has been its controlling force.[2]The second claimant (‘UKFB’) has been trading in flood defence products since 2008. Towards the end of that year it entered discussions with BV (then trading as Van den Noort Innovations BV) about acting as the exclusive worldwide distributor of the SCFB. About two years later BV agreed to grant a licence under patent rights and knowhow owned by BV. The first claimant (‘Global Flood’) was incorporated to act as licensee and the licence was concluded on 23 November 2010 between BV and Global Flood (‘the Licence Agreement’).[3]There arose a dispute about the patent rights owned by BV. Global Flood stopped paying royalties and the Licence Agreement was terminated by BV, coming to an end on a date no later than 18 February 2014. The claimants ceased sales of the SCFB and instead began to sell an alternative flood defence product, the ‘self activating flood barrier’ or ‘SAFB’.[4]The defendants objected to the claimants’ continued activity in the flood defence market, saying that the SAFB infringed patent rights owned by BV. Threats to bring proceedings for patent infringement were made. On 6 May 2014 the claimants started these proceedings, alleging that the defendants’ threats were groundless and actionable. The defendants do not deny that the communications complained of were threats within the meaning of s.70(1) of the Patents Act 1977 (‘the Act’) or that the claimants are persons aggrieved by the threats within the meaning of s.70(2). The defendants say that all the threats are justifiable and that there is a defence to each of them pursuant to s.70(2A).[5]The claim against the third defendant was settled at an early stage and hereafter ‘the defendants’ should be taken to mean just the first and second defendants.[6]BV counterclaimed for royalties due from Global Flood under the Licence Agreement and also for a declaration that a Community registered trade mark owned by the Global Flood is invalidly registered.[7]The claimants then amended and expanded their claim, alleging that the defendants had made misrepresentations to the claimants which had induced BV to enter into the Licence Agreement. This is said to provide both a defence to the claim for outstanding royalties and to set up a claim for damages due to the misrepresentation.[8]On 21 January 2015 the claimants applied for summary judgment in relation to the alleged threats. In a judgment handed down on 29 January 2015 (‘the January Judgment’) I dismissed the claimants’ application though I gave permission to appeal. There was no appeal in the event, so the allegation of threats remains live.[9]The counterclaim for a declaration that the first defendant’s Community trade mark is invalid has not been pursued and the claim for outstanding royalties has been narrowed. The remaining issues are:(1) the claimants’ claim for unjustified threats of patent infringement proceedings;(2) Global Flood’s claim for misrepresentation;(3) BV’s counterclaim for €228,316.36, being the balance for minimum royalties due under clause 4.4 of the Licence Agreement for the calendar year 2013.

The claim in relation to threats

[10]The issue is whether the admitted threats can be justified. The claimants say that there is now no possibility of justification, so the threats claim should be dismissed. Neither side is in a position to argue the claim at this stage, so the defendants say that it should be adjourned and heard at a later date.[11]The threats were made by reference to a patent application – in other words they were threats to sue for infringement of rights arising under s.69 of the Patents Act 1977 (‘the Act’). In the January Judgment I explained this as follows:
“[12] … the first defendant has no granted patent with claims that cover the claimants’ flood defence products in the UK. However, it owns European Patent Application 2315880, which designates the UK, and asserts that it has the contingent right to claim relief in relation to the sale of such products pursuant to s.69 of the Act: 69. (1) Where an application for a patent for an invention is published, then, subject to subsections (2) and (3) below, the applicant shall have, as from the publication and until the grant of the patent, the same right as he would have had, if the patent had been granted on the date of the publication of the application, to bring proceedings in the court or before the comptroller for damages in respect of any act which would have infringed the patent; and (subject to subsections (2) and (3) below) references in sections 60 to 62 and 66 to 68 above to a patent and the proprietor of a patent shall be respectively construed as including references to any such application and the applicant, and references to a patent being in force, being granted, being valid or existing shall be construed accordingly. (2) The applicant shall be entitled to bring proceedings by virtue of this section in respect of any act only – (a) after the patent has been granted; and (b) if the act would, if the patent had been granted on the date of the publication of the application, have infringed not only the patent, but also the claims (as interpreted by the description and any drawings referred to in the description or claims) in the form in which they were contained in the application immediately before the preparations for its publication were completed by the Patent Office. [13] The defendants say that once EPA 2315880 has matured to grant they will be entitled to bring proceedings against the claimants in relation to sales of their flood defence products between the publication of EPA 2315880 and the grant of the patent because if the patent had been granted on date of publication of the application, those sales would have infringed both the claims of the patent and the claims of EPA 2315880 (in the form they took immediately before the preparations for its publication). [14] A claim raised under s.69, where there is no granted patent, is necessarily contingent: it depends among other things on (a) the patent being granted and (b) the granted claims being in a form which covers the product or process complained of. [15] The defendants say this makes no difference – s.70(2A) of the Act still provides a potential defence sufficient to defeat a claim for summary judgment. [16] Section 70(1) and (2) of the Act provide for the right to sue a party making threats of bringing proceedings for patent infringement and claim relief: 70. (1) Where a person (whether or not the proprietor of, or entitled to any right in, a patent) by circulars, advertisements or otherwise threatens another person with proceedings for any infringement of a patent, a person aggrieved by the threats (whether or not he is the person to whom the threats are made) may, subject to subsection (4) below, bring proceedings in the court against the person making the threats, claiming any relief mentioned in subsection (3) below. (2) In any such proceedings the claimant or pursuer shall, subject to subsection (2A) below, be entitled to the relief claimed if he proves that the threats were so made and satisfies the court that he is a person aggrieved by them. [17] Section 70(2A) provides for a defence to an allegation of threats: (2A) If the defendant or defender proves that the acts in respect of which proceedings were threatened constitute or, if done, would constitute an infringement of a patent– (a) the claimant or pursuer shall be entitled to the relief claimed only if he shows that the patent alleged to be infringed is invalid in a relevant respect; (b) even if the claimant or pursuer does show that the patent is invalid in a relevant respect, he shall not be entitled to the relief claimed if the defendant or defender proves that at the time of making the threats he did not know, and had no reason to suspect, that the patent was invalid in that respect.” (2) The applicant shall be entitled to bring proceedings by virtue of this section in respect of any act only – (a) after the patent has been granted; and (b) if the act would, if the patent had been granted on the date of the publication of the application, have infringed not only the patent, but also the claims (as interpreted by the description and any drawings referred to in the description or claims) in the form in which they were contained in the application immediately before the preparations for its publication were completed by the Patent Office. (2) In any such proceedings the claimant or pursuer shall, subject to subsection (2A) below, be entitled to the relief claimed if he proves that the threats were so made and satisfies the court that he is a person aggrieved by them. (a) the claimant or pursuer shall be entitled to the relief claimed only if he shows that the patent alleged to be infringed is invalid in a relevant respect; (b) even if the claimant or pursuer does show that the patent is invalid in a relevant respect, he shall not be entitled to the relief claimed if the defendant or defender proves that at the time of making the threats he did not know, and had no reason to suspect, that the patent was invalid in that respect.”
[12]The effect of those sections in the context of a threat made in relation to a patent application has been considered by the Court of Appeal and Laddie J, in the same case. I went on to review those authorities: “[19] If section 70(1) were to be interpreted literally it would provide no remedy for a threat to sue for infringement of s.69 rights – that is to say a threat to bring proceedings once a patent application is granted and to include in those proceedings a claim for relief in respect of acts done in the period between publication of the application and the grant of the patent. Section 70(1) refers only to threats of proceedings for infringement of a ‘patent’. [20] In Patrick John Brain v Ingledew Brown Bennison & Garrett [1996] FSR 341 the Court of Appeal rejected such an over-literal construction of s.70(1). In that case the threat made by the first defendant, a firm of solicitors, on their clients’ behalf was unequivocally stated to be in relation to the rights that would be available under their client’s patent application if the patent were to be granted. The solicitors wrote: ‘The purpose of this letter is to ensure that you are aware that the patent application has been made, that if granted it will have retrospective effect, and to give you notice that our client intends to take appropriate action to restrain the infringement of its rights and the use of confidential material as well as seeking damages for all past such infringements and use.’ At first instance it was argued that such a threat was not within the ambit of s.70(1) and therefore not actionable. This was rejected by Jacob J ([1995] FSR 552). The argument was not pursued on appeal. Even so, it was again rejected in terms. Aldous LJ said this (at p.347-8): ‘I agree with the judge and as his conclusion is no longer challenged there is no need for me to go further. In any case, I contemplate that where a threat is made prior to grant, it would be understood as a threat to bring proceedings once the patent is granted. That is a threat of proceedings for infringement of a patent and therefore actionable.’ [21] The related matter which remained in dispute in the appeal was this: given that a party could sue for a threat to bring proceedings to enforce s.69 rights, was there a defence of justification available to the party who issued the threat? (At the time of the Brain litigation such a defence was provided for by what was then s.70(2) of the Act. The change introduced by the repeal of that subsection and the introduction of s.70(2A) makes no difference here.) Aldous LJ observed that it would be illogical to provide for a cause of action for a threat to bring proceedings for infringement of s.69 rights and yet deprive the threatening party of a defence of justification. Accordingly there is such a defence. He said this (at p.344): ‘Section 70 is designed to prevent groundless threats of patent proceedings being made. Thus it would be illogical to construe section 70 as giving rights to a person threatened with proceedings for infringement of a patent albeit in respect of pre-grant acts, if the threatener could not establish that his threats were proper. That illogicality does not in my view arise. Section 70(2)(a) allows the threatener to avoid liability if he proves that the acts in respect of which the proceedings were threatened constitute or if done would constitute an infringement of a patent. The acts, to be an infringement, must fall within section 60. That section is to be read subject to section 69. Thus a threat of the type contemplated in this case, is a threat to bring proceedings when the patent is granted for acts which are actionable acts by reason of section 69. No difficulty arises in deciding whether the threats can be justified, provided appropriate steps are taken to ensure the patent is granted before the action comes to trial.’ [22] Thus, Aldous LJ’s primary view was that where a defence of justification was being run by a party threatening to bring proceeding for infringement of s.69 rights, that party should make sure that the patent is granted before trial. He went on to consider what the position might be if the patent had not been granted by then. He said this (at p.348): ‘If, however, there is an extraordinary delay in grant of the patent, the court could perhaps look at the published specification and decide, upon the balance of probabilities, whether the alleged acts will infringe the patent when granted and whether a valid patent will be granted.’ [23] Hobhouse LJ agreed that threats to bring proceedings for infringement of s.69 rights could be brought under s.70(1) and justified under what was then s.70(2). But he was not persuaded that a defence under s.70(2) could ever be available unless the patent had been granted before the trial (at p.355). Beldam LJ agreed with both judgments. [24] Following the appeal the plaintiffs applied to strike out the defence of justification under s.70(2) on the ground that the second defendant’s patent application was still pending before the European Patent Office. As a consequence the defendants were unable to give particulars of each patent claim which they said would be infringed or of the respective alleged infringing acts. Laddie J ([1997] FSR 271) considered the earlier judgment of the Court of Appeal. He ruled that there was a strict limit to the defence of justification available under s.70(2) where the threat had been in relation to s.69 rights: there could be no such defence if the patent had not been granted by the time of the trial.” ‘The purpose of this letter is to ensure that you are aware that the patent application has been made, that if granted it will have retrospective effect, and to give you notice that our client intends to take appropriate action to restrain the infringement of its rights and the use of confidential material as well as seeking damages for all past such infringements and use.’ ‘I agree with the judge and as his conclusion is no longer challenged there is no need for me to go further. In any case, I contemplate that where a threat is made prior to grant, it would be understood as a threat to bring proceedings once the patent is granted. That is a threat of proceedings for infringement of a patent and therefore actionable.’ ‘Section 70 is designed to prevent groundless threats of patent proceedings being made. Thus it would be illogical to construe section 70 as giving rights to a person threatened with proceedings for infringement of a patent albeit in respect of pre-grant acts, if the threatener could not establish that his threats were proper. That illogicality does not in my view arise. Section 70(2)(a) allows the threatener to avoid liability if he proves that the acts in respect of which the proceedings were threatened constitute or if done would constitute an infringement of a patent. The acts, to be an infringement, must fall within section 60. That section is to be read subject to section 69. Thus a threat of the type contemplated in this case, is a threat to bring proceedings when the patent is granted for acts which are actionable acts by reason of section 69. No difficulty arises in deciding whether the threats can be justified, provided appropriate steps are taken to ensure the patent is granted before the action comes to trial.’ ‘If, however, there is an extraordinary delay in grant of the patent, the court could perhaps look at the published specification and decide, upon the balance of probabilities, whether the alleged acts will infringe the patent when granted and whether a valid patent will be granted.’[13]In these proceedings a case management conference followed the January Judgment in which directions for trial were given. This was in an Order dated 29 January 2015. The trial was fixed for 8 and 9 December 2015 (with no order for expedition) and there was discussion about how best to proceed. One possibility was that by 8 December EPA 2315880 would have been rejected by the European Patent Office (‘the EPO’) or would still be pending. If so, subject to a possible qualification I will return to, pursuant to the ruling of Laddie J in Brain the defendants would not be able to justify their threats at the time of the trial and the claimants would succeed on this part of the claim. It was decided that there should be a further case management conference some weeks before the trial by when, it was hoped, the status or progress of EPA 2315880 would be clear and the directions for trial could be adjusted appropriately. I also granted an injunction restraining the defendants from issuing further threats.[14]The second CMC was heard on 5 October 2015. The likely progress of EPA 2315880 by 8 and 9 December 2015 was still not clear. There was no expectation by either side that a patent would have been granted by the time of the trial, but a third possibility had arisen. It is the practice of the EPO, where a decision has been taken to grant a patent, to issue a ‘decision to grant’ to the applicant. The decision to grant takes effect only upon grant itself; the grant happens on the date on which the mention of the grant is published in the European Patent Bulletin (see art.97(3) of the European Patent Convention (‘the EPC’)). The decision to grant does have one important effect, however. Once taken, the text of the application, including the claims, can no longer be amended save for corrections under rule 140 EPC to remedy linguistic errors, errors of transcription or obvious mistakes, see J07/96 Suspension of Proceedings [2000] E.P.O.R. 1, para. 6.1.[15]On 5 October 2015 the defendants were cautiously optimistic that by 8 December 2015 a decision to grant would have been issued by the EPO. What then? Mr Hicks, who appeared for the claimants at that hearing and at trial, was content to concede that if by the time of the trial EPA 2315880 was “so close to grant that everybody knows exactly what the claims are and there can be no possibility of change”, the position would be the same as if the patent had been granted. The transcript of the hearing shows that I did not take this to be a binding concession, but also expressed the view that any argument to the contrary would be difficult. Both sides agreed that because preparation of the threats issue (including the question of validity of any granted patent) had necessarily been put on hold, that issue could not now be decided at the trial to be heard on 8-9 December 2015.[16]The defendants’ optimism has been vindicated. On 19 November 2015 the EPO issued a decision to grant EPA 2315880. The claims were therefore fixed and the patent was to be granted on 16 December 2015, i.e. 7 days after the second day of the trial. Nevertheless, the claimants now argue that this was not good enough: the deadline of the trial date had been missed, the defendants could not justify their threats and so judgment on this aspect of the case should be entered against them. Having heard Mr Hicks and Mr Alkin, who appeared for the defendants, I ruled that I would not enter judgment in relation to the threats issue. It was adjourned to be heard at a later date, with directions to be given in due course. I said I would give my reasons in this judgment and they now follow.[17]The starting point is the judgment of Laddie J in Brainv Ingledew Brown Bennison & Garrett (No. 2) [1997] F.S.R. 271, in which he said this, at p.275-6: “Absent a granted patent at the time of trial, I fail to see how a defence under the wording of section 70(2) can arise or be determined. The words of the section make it clear that the defence only arises if the defendant proves that the acts complained of constitute an infringement of a patent. Aldous L.J.’s views on this issue were clearly obiter and, as evidenced by his use of the word ‘perhaps’, tentative. Furthermore they were not adopted by Hobhouse L.J. In addition I do not consider an inability to run the defence in those circumstances to be unfair on the defendant. A defendant who chooses to issue threats on the basis of a patent application exposes himself to the risk that, if those threats are made the subject of an action under section 70, by the time of the trial he will not have available to him the defence under section 70(2) which he would have had had he held back until his patent had been granted. If he chooses to take the risk of issuing threats on the back of an application and not a granted patent, he cannot complain if, at the date of the trial, one of the statutory defences under the Act is not available to him. Mr Hamer, who appeared for the defendants, said that he was not enthusiastic about putting forward hypothetical claims, in other words, claims which he thought might be granted at some date in the future. For the reasons I have given, I cannot see how hypothetical claims could provide a defence under section 70(2). Furthermore, it seems to me hopeless for the court to attempt to decide a case on the basis of such hypothetical claims. Mr Hamer conceded that if he put forward hypothetical claims, it would be open to the plaintiff to argue that those claims are unlikely to pass through the European Patent Office either at all or unscathed. Therefore a whole raft of hypothetical questions would have to be addressed by the court. In particular, the court here would have to second-guess whether or not the European Patent Office was likely to accept the hypothetical claims. I assume that it would then have to look at all the objections raised against the application and come to a conclusion not only as to how they are likely to be decided by the EPO but whether the defendant will be required to amend his claims and, if so, in what way. I cannot conceive of that being a proper way to approach the defence under section 70(2). Alternatively, Mr Hamer said, it would be appropriate to stay the proceedings until such time as the patent had been granted. No application for a stay was raised before me as such. It may be that there will be cases where a final resolution in the EPO is imminent and a short stay may not be improper, but I think the court should be very careful before acceding to any such request. Usually a plaintiff comes to the court to restrain threats because he alleges that his business has been damaged and continues to be damaged by the threats which the defendant has made. As I have already indicated, a defendant who makes such threats when he has no granted patent takes the risk that the injured party will bring proceedings on rapidly for the purpose of putting an early end to the harm to his business. If that happens, it may well be that a defence under section 70(2) will not be available at the time when the court has to determine the issue. I do not think it would be appropriate for me to stay these proceedings, even if that application was properly before me.” (original italics)[18]Laddie J appears to have contemplated that in some limited circumstances, where a final resolution in the EPO is imminent, threats proceedings could be adjourned until after the grant of the patent. I asked Mr Hicks what, in his submission, those circumstances would be. His position was that there were none: a party who made threats in relation to a patent application did so at his own risk, in particular that the trial would be heard before the patent was granted. A defendant who chose to make a threat by reference to a patent application, gambling that he would meet the deadline and losing, had only himself to blame.[19]By way of a fall-back, the claimants’ secondary case was that if this ‘bright line’ distinction – between threats that might be justified and those that could not be – did not exist, the decision whether to adjourn these proceedings was still a matter of discretion which should take into account all relevant circumstances. Mr Hicks said that there were three. The first was that the defendants had not prosecuted EPA 2315880 with sufficient diligence. The second was that the claimants had launched these proceedings in May 2014 and were still waiting for a trial to resolve the question of alleged threats. The third was that in breach of the injunction granted on 29 January 2015, the defendants had made a further threat.[20]Beginning with Mr Hicks’s main submission, it may well be that Laddie J did not feel it was necessary to resolve fully in his own mind the sort of circumstances in which a stay of threats proceedings in relation to a patent application should be granted even though the patent has not yet been granted. But I do not accept that there can be none. In fact, in my view the present circumstances qualify. I think to draw a distinction between grant on 9 December and on 16 December 2015 would be artificial. Also, once the notice of grant has been issued, the difficulties of speculation about what the final claims might be which concerned Laddie J fall away. Subject to any countervailing matters which bear on the exercise of the court’s discretion, in my view a stay should be granted. I turn to the three raised by Mr Hicks.[21]First, to the extent that the defendants could have prosecuted EPA 2315880 more speedily, this was at their own risk. I don’t see how it is relevant to my discretion here. Besides, almost immediately after the CMC on 29 January 2015 the defendants sought expedition of grant from the EPO.[22]As to the second point, it is true that a delay in the trial date in respect of proceedings started some 19 months ago is not ideal. But Mr Hicks did not suggest that this was the defendants’ fault; rather, it is due to the way these proceedings have progressed generally. In addition the claimants are protected by an interim injunction so the prejudice to them will be limited.[23]The third matter raised was that the defendants have made a further threat to the claimants’ customers. In Mr Hicks’s skeleton this was not presented as a breach of the interim injunction, though in his oral submissions he moved in that direction. No application has been made for committal for contempt of court.[24]The allegation of a further threat rests on a letter dated 12 October 2015 from the second defendant (“Mr van den Noort”) on behalf of BV (under an earlier name) to Carlos de Paz, apparently in his capacity as officer of Grupo Navec, a group of companies with headquarters in Tarragona in Spain. It was common ground that one of these companies had been supplied with a flood barrier by the claimants for onward supply to another undertaking in Spain. The letter was as follows:
“Dear Mr Carlos De Paz We are recently informed of your marketing efforts regarding a Self Closing Flood Barrier (SCFB). As proprietor of several patent rights regarding ‘a self closing flood barrier and method for protection of hinterland using the same’, including the International application with publication number WO2009 139622, a European Patent application with publication number EP 2 315 885 [sic], and including patent applications in several other continents. Infringements It is in our position that your infringes on the patents rights of the Self Closing Flood barrier. Based on the PCT patent treaty and the European patent convention, the patent rights conferred to the proprietor from the date of publication of the patent application are the same as the rights conferred to the owner of the granted patent. Therefore any product, including your above Self Closing Flood Barrier, falls under the protection of the patent application indicated. At least one direct infringement has been noticed by us, being an order to delivery of a self closing flood barrier to: the edifició bomberos at the Carer de la Classificació, Tarragona. at this particular point, it is our position to stop you immediately and that the below declaration is agreed upon and returned after legally signing. Notification From this position, you are herewith notified of the existence of the asserted patent rights for all European patent convention countries, as well as Australia, China, India, Japan, Mexico, The united States and Vietnam. The consequence of further commercial exploitation of the flood barrier in any of these countries are liable to damage unless such commercial exploitation has been approved under a distributor of Hyflo Self Closing Flood System BV in the Netherlands. www.hyflo.nl. Commercial exploitation comprises all activities directed to developing, producing, keeping in stock, offering for sales, publishing on websites, etc. therefore, all such activities lead to risks of infringement or possible damages. Declaration It is therefore brought onto you to sign the below declaration (to be retyped on your letterhead):”
There followed the text of declaration sought by Mr van den Noort. Infringements Notification

Declaration

[25]Mr Hicks relied on the notification in the letter of the existence of patent rights “for all European patent convention countries”. This must include the UK. A threat made to a person outside the UK of proceedings within the UK is actionable under s.70 of the Act, see Best Buy Co Inc v Worldwide Sales Corporation España SL [2011] FSR 30 (CA), at [24]). In my view the mere notification of a European patent and its UK designation falls within the exception provided for by s.70(5)(a), as would have been the case pursuant to s.70(5) of the Act prior to the modification of s.70 pursuant to the Patents Act 2004. However Mr Hicks argued that this notification, taken together with the assertion: “It is in our position that your infringes on the patents rights of the Self Closing Flood barrier” followed by a reference to the PCT Treaty and the EPC, together constituted a threat to bring proceedings in the UK.[26]In assessing whether the letter constituted an actionable threat, I must interpret it through the eyes of a reasonable person in the position of Mr Carlos de Paz. The letter should be taken to mean what that reasonable person would have understood the writer to mean, taking into account the letter as a whole and Mr Carlos de Paz’s knowledge of relevant circumstances at the date the letter was written, see Best Buy at [18]. It was not suggested that the Spanish company was doing anything with flood barriers outside Spain. It seems to me that the threat, and I think there is one, in the section headed “Infringements” would be interpreted by a reasonable recipient of the letter to be directed at acts in Spain only. That is not an actionable threat pursuant to s.70 of the Act. Mr Hicks argued that the recipient would in addition take it to be a threat against the claimants in England as joint tortfeasors. That presupposes a knowledge of English law of some sophistication and having no information at all about Mr Carlos de Paz I cannot make that assumption on his behalf and I do not believe that a reasonable person in his position should be taken to have a better awareness of the law on joint tortfeasance.[27]I do not regard a threat to bring proceedings in Spain as a factor to be considered in the exercise of my discretion on the question of adjournment. On the information I have it is possible that there was nothing unlawful about such threats under Spanish law.[28]I have looked again at the letter since the trial and it is the combination of the three paragraphs under the heading “Notification”, taken in the context of the letter as a whole, which to my mind come closest to an actionable threat of proceedings in the UK. However my attention was not directed to this particular aspect of the letter and so there was no reason for the defendants to make submissions about it. I therefore believe that I should not make a finding about those three paragraphs.[29]Whether or not there was a threat of proceedings in the UK against the Spanish company, it is not suggested that the letter has been of any practical significance. I must nonetheless weigh it in the balance when deciding whether to adjourn the threats claim. Having done so I retain the view formed at trial that the letter should not affect my discretion to give the defendants the opportunity to defend the allegation of threats on the ground that the threats were justified. For that reason this part of the proceedings is adjourned.

Misrepresentation

[30]The misrepresentations alleged were all negligent misrepresentations. The claim for damages was made pursuant to section 2 of the Misrepresentation Act 1967.

The law

[31]Section 2 provides: 2. Damages for misrepresentation(1) Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made the facts represented were true.(2) Where a person has entered into a contract after a misrepresentation has been made to him otherwise than fraudulently, and he would be entitled, by reason of the misrepresentation, to rescind the contract, then, if it is claimed, in any proceedings arising out of the contract, that the contract ought to be or has been rescinded, the court or arbitrator may declare the contract subsisting and award damages in lieu of rescission, if of opinion that it would be equitable to do so, having regard to the nature of the misrepresentation and the loss that would be caused by it if the contract were upheld, as well as to the loss that rescission would cause to the other party.(3) Damages may be awarded against a person under subsection (2) of this section whether or not he is liable to damages under subsection (1) thereof, but where he is so liable any award under the said subsection (2) shall be taken into account in assessing his liability under the said subsection (1).[32]At one point there seemed some doubt about whether the claimants were alleging that the Licence Agreement had been rescinded. Mr Hicks said they were not making that allegation and that the Licence Agreement had expired in accordance with its terms. The claimants’ claim is purely for damages pursuant to s.2(1) of the Act.

The elements of a negligent misrepresentation

[33]Pursuant to s.2(1) the claimants must prove that(i) Global Flood entered into a contract;(ii) the contract was entered into after a misrepresentation by BV and/or Mr Van den Noort;(iii) as a result Global Flood suffered loss;(iv) the defendants would be liable in damages in respect of such loss had the misrepresentation been made fraudulently. Global Flood has a defence if it had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.[34]Global Flood certainly entered into the Licence Agreement and no point is taken in relation to (iv). As to the other elements of the claim it was common ground that Global Flood had to establish in relation to each representation relied on that(a) it was a false statement of fact,(b) it was communicated by one or other of the defendants to Global Flood and(c) it operated on the mind of Global Flood so as to induce Global Flood to enter into the Licence Agreement. It was not in dispute that Francis Kelly, the director and moving force behind the claimants, could be taken to be Global Flood.

More detailed propositions of law

[35]Propositions of law which are relevant to this case can, I believe, be stated as follows:(1) Silence by itself cannot found a claim in misrepresentation, see Raiffeisen Zentralbank Österreich AG v The Royal Bank of Scotland plc 2010 EWHC 1392 (Comm); [2011] 1 Lloyd's Rep. 123, at [84]. However a representation which is left unqualified by the representee is to be treated as a continuing representation, see With v O'Flanagan [1936] Ch. 575. Thus, while there is no duty to keep the representee constantly updated, there is a duty on the representor to communicate a change of circumstance which, to the representor’s knowledge, has by the date of the contract falsified the representation. What matters is the state of affairs when the contract is entered into and the representation is acted upon, see FoodCo UK LLP v Henry Boot Developments Limited [2010] EWHC 358 (Ch) at [208]-[215].(2) It is not necessary for the misrepresentation relied on to be the sole cause which induced the representee to make the contract; it is sufficient if it can be shown to be one of the causes, see Edgington v Fitzmaurice (1885) 29 Ch. D 459. This long-standing principle has recently been reasserted as good law: Taberna Europe CDO II plc v Selskabet AF1.September 2008 In Bankruptcy [2015] EWHC 871 (Comm), at [100] and [153]. In Taberna Europe Eder J also held that the ‘but for’ test applies: the representation is not actionable unless the representee would not have entered the contract but for the representation, at [100] and [153].(3) A representation is to be assessed objectively through the eyes of a reasonable person in the position of, and with the background knowledge reasonably available to, the actual representee, see Primus Telecommunications Plc v MCI WorldCom International Inc. [2004] EWCA Civ 957; [2004] 2 All E.R. (Comm) 833, per Mance LJ at [30]: “As I presently see the position, whether there is a representation and what its nature is must be judged objectively according to the impact that whatever is said may be expected to have on a reasonable representee in the position and with the known characteristics of the actual representee (just as contractual interpretation depends on ascertaining “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”: Investors Compensation Scheme Ltd. v. West Bromwich B. S. [1998] 1 WLR 896, 912 per Lord Hoffmann). See also Arnold v Britton [2015] UKSC 36; [2015] A.C. 1619, at [14]-[23]. (5) The claimant must show that he in fact understood the representation in the sense which the court ascribes to it, so far as is material, and that having that understanding, he relied on it, see Raiffeisen at [87]. (6) It is open to a defendant to show that notwithstanding his misrepresentation, the claimant was aware of the true facts and was therefore not induced by the misrepresentation to enter into the contract. However, it is not enough for the defendant to establish that the claimant could have discovered the true facts, it must be shown that he did discover them. See Peekay Intermark Limited v ANZ Banking GroupLimited [2006] EWCA Civ 386; [2006] 1 C.L.C. 582 per Moore-Bick LJ at [40] and the cases discussed at [30]-[39]. (7) A misrepresentation which induces the representee to enter a contract is not actionable if the terms of the contract correct the falsity contained in the misrepresentation. This is irrespective of whether the representee reads the contract, see Peekay cited above.[36]This last proposition and its source, Peekay, were given some attention during the trial and so I will say a little more about it. In that case the claimant expressed to the defendant bank an interest in investing in a financial product which related to a hedged Russian Treasury Bill. A ‘rough and ready’ explanation of the investment given to a director of the claimant by a representative of the bank described the investment in a way that was not consistent with its true nature. This led the director to misunderstand the nature of the product. The claimant decided to invest and was sent the defendant bank’s final terms and conditions. These final terms and conditions described the product accurately. They were not read by any representative of the claimant. The claimant made the investment. Subsequently the Russian government announced a moratorium on certain of its debt obligations and in consequence the claimant lost substantially the whole of its investment. The claimant sued the defendant bank for misrepresentation relying on what had been said on behalf of the defendant bank in the pre-contractual discussion.[37]The Court of Appeal held that the claimant must be taken to have read the final terms and conditions. Had it done so, there would have been no misrepresentation. The claimant had been induced to enter the contract not by what had been said in the oral discussions, but by the assumption on the part of the relevant director that the investment product corresponded to the description he had previously been given.[38]The Court of Appeal was in particular concerned that the commercial certainty which flows from an assumption that a party is bound by the terms of a contract into which he enters would be undermined by any different approach to the law of misrepresentation. Moore-Bick LJ (with whom Chadwick LJ and Lawrence Collins J agreed) said this at [43]:
“… the true position appeared clearly from the terms of the very contract which the claimant says it was induced to enter into by the misrepresentation. Moreover, it was not buried in a mass of small print but appeared on the face of the documents as part of the description of the investment product to which the contract related. It was accepted that a person who signs a document knowing that it is intended to have legal effect is generally bound by its terms, whether he has actually read them or not. The classic example of this is to be found in L'Estrange v Graucob [1934] 2 KB 394. It is an important principle of English law which underpins the whole of commercial life; any erosion of it would have serious repercussions far beyond the business community.”

The manner in which the representation is communicated

[39]Having set out the foregoing principles of law, it is necessary for me to consider a further matter.[40]Particularly where a representation is made in writing, the nature and style of the communication may influence the court’s approach to the construction of a document. For example, a chatty representation made in an email will not generally be interpreted by strict application of all the usual rules of construction. By contrast if the representation is made, for instance, in a draft patent licence agreement written in the usual style of such documents, it will be more appropriate to apply the usual rules of construction to the draft. Business sense is to be given to business documents, see Homburg Houtimport BV v Agrosin Private Ltd [2003] UKHL 12; [2004] 1 A.C. 715 at [10]. Moreover the nature and style of the document may indicate to a reasonable person in the position of the representee that he needs to secure the help of someone with relevant expertise before he is able to interpret the document correctly. The understanding of the document on the part of a representee who fails to do this may significantly differ from the understanding of a reasonable person in his shoes who has taken appropriately informed advice. In my view, only the latter is relevant. It would be unsatisfactory if this were not the law. In that event, where the representation is contained in a specialist document and the representee has no relevant training, he could rely on his own reasonable ignorance together with a mulish refusal to take informed advice to say that his genuine but false interpretation of the document induced him to enter into the agreement.[41]Although this will probably more usually arise in the context of written representations, it seems to me that the same principle applies in relation to oral representations. The representation will be taken to be that which would be understood by a reasonable person with the background knowledge of the representee, such knowledge having been supplemented by informed specialist advice where the nature and style of the representation reasonably indicates that such advice is necessary for its accurate understanding.

The intention of the representor

[42]During the trial Mr Alkin advanced a further proposition of law: for a misrepresentation to be actionable it is not sufficient that it acted on the mind of the representee so as to induce him to enter the contract: this must also have been the intention of the representor. Mr Alkin relied on a section of Halsbury 5th ed. vol. 76 which discusses the distinction between the materiality of the misrepresentation. He referred me to two sentences. The first is at paragraph 764: “No misrepresentation, however gross or fraudulent, draws with it any civil consequences unless it was material and was intended to, and did, influence the mind of the representee so as to affect his conduct.” (my emphasis).[43]No authority is given by Halsbury in support of the relevance of the representor’s intention. The question whether intention is an essential ingredient to actionable misrepresentation, as opposed to adding just evidential weight to an allegation that the representation was relied on, is discussed by the authors of Chitty on Contracts 32nd ed. at 7-033 to 7-034. Broadly, their view is that this proposition should be treated with caution, although law is not certain. I found the analysis in Chitty with reference to authorities persuasive. Mr Hicks had neither reason nor the opportunity to address the authorities on this point and so I leave it aside.[44]The second sentence in Halsbury on which Mr Alkin relied is at paragraph 773:
“A representation is material when its tendency, or its natural and probable result, is to induce the representee to act on the faith of it in the kind of way in which he is proved to have in fact acted.”
This seems to be more in the claimants’ favour than the defendants’. It suggests that a representation may be actionable even if it did not induce the representee to act on it provided that was its tendency or its natural and probable result. This is not consistent with the first sentence and I doubt that it is good law. I leave this aside as well.

The representations relied on

[45]Of the four misrepresentations pleaded, one fell away following a concession in cross-examination by Mr Kelly. The three remaining are the following:(1) The SCFB was protected by a valid European patent for a period of 20 years from 16 January 1996.(2) Shortly before 31 August 2010 a new patent had been granted for the SCFB.(3) The SCFB was protected by a United States patent. The claimants say that all three representations were false, that they were made before the Licence Agreement was concluded on 23 November 2010 and that reliance on them induced Global Flood to enter into the Licence Agreement.[46]To give more detail about the background facts, in about October 2008 Mr Kelly became aware of the SCFB flood prevention product, then being promoted by a Dutch business called Holland High Water Solutions (‘HHWS’). HHWS indicated that it was the sole representative of the developer of the SCFB and was entitled to sell the rights to the product worldwide. On 25 October HHWS sent Mr Kelly a draft ‘Exclusive Marketing and License Agreement’. The licensor in the draft was BV (then called Van den Noort Innovations).[47]Mr Kelly did not want to enter into a licence at that time and wished instead to test the market. To this end UKFB requested and obtained a period of exclusive exploitation of the SCFB in the UK and Ireland until 1 July 2009. UKFB promoted the product throughout 2009 and made its first sale in January 2010. In order to assist with the marketing and the sale, Mr Van den Noort sent drawings of the product marked “All rights reserved by patents”.

The first alleged misrepresentation: the SCFB was protected by a valid European patent

[48]In February 2010 Mr Van den Noort visited Mr Kelly in London to discuss an expansion of UKFB’s rights. During the discussions he mentioned that he was having difficulties with a UK company called Shellform which, he believed, was infringing BV’s patent rights. Mr Kelly offered to help.[49]Following that meeting, on 23 February 2010 Mr Van den Noort emailed to Mr Kelly a copy of his email correspondence with Shellform together with “both the Patents of the SCFB included”. The claimants argue that the Shellform correspondence contains the representation that the SCFB was protected by a valid European patent for a period of 20 years from 16 January 1996 and that by providing a copy to Mr Kelly, the representation was made also to Global Flood. The statements in the Shellform correspondence included the following: (1) 5 January 2010 to Shellform:
“your Flood Defence system as described in this website is protected by our PCT Patent under publication nr 2009/139622 A1. With this publication you are encroaching our patents of the Self Closing Flood Barrier…and we cann’t permit this.” (2) 6 January 2010 to Shellform (in response to a request to identify the correct patent publication number): “The Self Closing Flood Barrier is protected dd. 16-01-1996 by the European Patent EP 0726 364. This Patent is still valid for the UK. In 2009 we applied for a renewed patent that is publiced [sic] under PCT nr2009/139622 A1.” (3) 25 January 2010 to Shellform: “… on February 9, 1995 we applied for a European and American patent. The European patent was filed on January 16, 1996 and remains valid for a period of 20 years. Enclosed, you receive a copy of this patent (EP 0726364 B1) hereby. The European patent includes the territory of the U.K. The principle of this patented Movable Water Dam is no different from your present flood barrier. So, to our opinion you are already in error with our first claim reg. this patent. In addition, the former Movable Dam principle has been further developed by us in 2008 demonstrating substantial improvements and advantages. With regard to the SCFB we have applied for a renewed patent, registered under WO 2009/139622A1, a copy of which you have already received from us …”
[50]The claimants say that the misrepresentation was repeated in recital A of drafts of the Licence Agreement sent to them and also in recital A of the Licence Agreement itself. Recital A of the Licence Agreement states:
“Licensor has developed a unique self-closing system focusing an entrenched dike or quay elevation through a vertically movable screen, incorporated in the dike’s or quay’s body. This screen is pushed up by the water power from an upcoming flood and descends once the flood recedes, without any alert or labour system, hereinafter mentioned as the ‘Self Closing Flood Barrier’ (SCFB), registered under a European, Netherlands and United States patent. For the revised type of the SCFB, Licensor has filed a PCT application with the World Intellectual Property Organisation and intends to file a Worldwide patent application. Hereupon, Licensor has acquired and owns the intellectual property rights related to the SCFB, and is authorised to license such intellectual property rights for life thereof.”
[51]Mr Van den Noort had owned European Patent No. 0 726 364 for an invention called ‘Movable dam’ with designations that included the UK. It covered the SCFB. But national designations had been allowed to lapse for non-payment of renewal fees, in the case of the UK on 16 January 2010, and by 3 August 2010 the last of the national designations had gone. So at the date of the Licence Agreement, 23 November 2010, EP 0 726 364 was not on the register in the UK or anywhere else.[52]On 2 April 2009 BV had filed a PCT Application, WO 2009/139622 A1, for an invention entitled ‘Self Closing Flood Barrier and Method for Protecting a Hinterland Using Same’ designating a large number of states, including the UK, and also regional protection in Europe via the EPC. It was this which led to EPA 2315880, the application at the centre of the threats proceedings. As of the date of the Licence Agreement no patents had been granted pursuant to the PCT Application.[53]Some time before the signing of the Licence Agreement the claimants sought advice from their solicitors, specifically Stuart Price of the firm Young & Lee Solicitors Limited. It appears from paragraph 4J(ii) of the Amended Reply and Defence to Counterclaim that this firm (now in liquidation) did not possess any expertise in patent law and practice. The only evidence of the advice received from Mr Price consists of undated manuscript annotations made by himon a copy of a draft of the Licence Agreement. The most relevant are those in the margin next to recital A:
“So part of what being licensed is only at Application stage, not registered” and “Need to review the Patents to see if valid”
[54]On 26 October 2010 Mr Van den Noort emailed Mr Kelly:
“Hallo Frank Time is going fast. The Patent inquire date is coming fast near by. European patent can be done with one inquiry. Whole Europe is there with protected for about 6 years form now, after about 5 years we have to choose with countries we exactly want. Outside Europe I want to protect USA, Australia, China, Japan, Vietnam, Mexico and Indonesia. I think that they cover the most important parts where we can expect competition in the flood market. Please can you let me know, if you can live with these countries?”
Please can you let me know, if you can live with these countries?”

The claimants’ contention

[55]The claimants argue that there was a clear statement in the email of 6 January 2010 to Shellform that the SCFB was protected by EP 0 726 364 which was still valid for the UK. This was repeated in the email of 25 January 2010 with the additional assertion that the patent was valid for 20 years from 16 January 1996. The assertions were true on 6 January 2010, although Mr Van den Noort knew that he was allowing the patent to lapse all over Europe. They were false by 25 January 2010. Necessarily they were still false when the Shellform emails were sent to Mr Kelly on 23 February 2010. That falsehood was not corrected prior to 23 November 2010 when the Licence Agreement was signed and indeed it was reinforced by recital A in the drafts of the Licence Agreement and in the Licence Agreement as signed.[56]In cross-examination Mr Kelly said that at the meeting in London with Mr Van den Noort in February 2010 all he was concerned about was that Mr Van den Noort had a European and a United States patent to protect the SCFB. Mr Kelly also said that if he had been told at the time he signed the Licence Agreement that there was no patent protection anywhere, “there would have been no financials on that document”. I take Mr Kelly to mean that he would not have considered entering the Licence Agreement worth the cost in the absence of patent protection, particularly in Europe and the United States. The claimants say that he was thereby induced to enter the Licence Agreement by the representation that the SCFB was protected by, in particular, a European and a United States patent.[57]There is an implied part of the claimants’ case that needs spelling out. The representation they rely on under this first head cannot be solely that there was a European patent protecting the SCFB. It must have included the representation that Global Flood would obtain an exclusive licence (or at least some sort of licence) under the patent by means of the Licence Agreement. If I were to interpret the alleged representation as: ‘There is a European patent covering the SCFB but Global Flood will not be licensed under that patent under the terms of the Licence Agreement’, such a representation would not be actionable since the subsistence of a valid European patent without any offer to Global Flood of a licence would certainly have operated as a disincentive to enter the Licence Agreement, not an inducement.

The defendants’ contention

[58]Mr Alkin primarily argued that whether or not there had been a misrepresentation before the signing of the Licence Agreement, it was corrected by the terms of the Licence Agreement itself and so cannot be actionable. He drew attention to first to the first sentence of article 3.1:
“Article 3 – Licence Grant 3.1 Licensor grants to Licensee an exclusive licence under Patent Rights and Technical Information to make, use, sell and make Improvements to the Licensed Devices throughout the Territory, upon the terms and conditions of this Agreement.…”
So far as patents were concerned, the licence being granted to Global Flood was under ‘Patent Rights’. These are defined in article 1.2:
“1.2 Patent Rights The term “Patent Rights” as used in this Agreement means the Worldwide patent issue based upon the World Intellectual Property Organisation PCT application, publication number WO 2009/139622 A1, filed, November 19,2009 with a priority filing date of May 13, 2008, entitled “Self Closing Flood Barrier and Method For Protecting a Hinterland Using Same”, together with any divisions, continuations, continuations-in-part, or reissues relating thereto, as modified from time to time by any amendments submitted to or entered in the appropriate international patent office.”
The term “Patent Rights” as used in this Agreement means the Worldwide patent issue based upon the World Intellectual Property Organisation PCT application, publication number WO 2009/139622 A1, filed, November 19,2009 with a priority filing date of May 13, 2008, entitled “Self Closing Flood Barrier and Method For Protecting a Hinterland Using Same”, together with any divisions, continuations, continuations-in-part, or reissues relating thereto, as modified from time to time by any amendments submitted to or entered in the appropriate international patent office.”[59]The only patent right licensed under the Licence Agreement was BV’s PCT Application. There was no licence or purported licence under a granted European or United States patent. The defendants say that Global Flood, in the person of Mr Kelly, cannot have been induced to enter into the Licence Agreement by a representation concerning protection afforded by a granted European patent because the operative terms of the Licence Agreement had nothing to do with a granted European patent.[60]Mr Alkin also submitted that once Mr Kelly had placed the draft Licence Agreement before Mr Price of Young & Lee Solicitors, he ceased to rely on any prior representation by Mr Van den Noort because in reality he relied on what he was told by Mr Price.[61]Mr Alkin further argued that in any event the Shellform emails did not constitute a representation that the SCFB was protected by a valid European patent.

Discussion

[62]I accept Mr Hicks’ contention that a reasonable reader in the position of Mr Kelly, to whom the Shellform emails were sent, would have concluded from those emails that the SCFB was protected by a granted and valid European patent. The question is whether that representation was corrected by the Licence Agreement.[63]For the reasons Mr Alkin gave, and leaving aside recital A for the moment, I take the view that any informed reader of the terms of the Licence Agreement would be clear that the only patent right being licensed was BV’s PCT Application. It was in fact a contingent licence: if any patent were to be granted anywhere pursuant to the PCT Application, whether in Europe (including the UK) or elsewhere, Global Flood would have an exclusive licence under such a patent.[64]Turning to the recital, the effect of the operative terms of the Licence Agreement cannot be altered by the recitals. Nonetheless, there is an inconsistency between recital A and the licence granted. As I have indicated, the recital includes this:
“This screen…hereinafter mentioned as the ‘Self Closing Flood Barrier’ (SCFB), registered under a European…patent.”
The recital goes on to speak of a revised type of SCFB, separately protected by the PCT Application. I think this would suggest to a reasonable reader that the existing SCFB is protected by a granted and subsisting European patent. However, having gone on to read the operative terms of the licence, the reader would realise that no licence is being granted under this European patent. Taken at face value the licence was worse than pointless since even after it was in force, dealings in the SCFB by Global Flood in the UK and elsewhere in Europe would be unlawful because of the European patent.[65]I am prepared to accept that Mr Kelly had not thought matters through this far on 23 November 2010. He claimed no training or expertise in patent licensing and may have thought that Global Flood was getting a licence under a subsisting and valid European patent. However for the reasons given above, Mr Kelly’s untutored view is not relevant. The representations made by the Licence Agreement were those that would be perceived by a reasonable reader of the document with the background knowledge of Mr Kelly who, if not having the appropriate expertise himself, had taken informed advice.[66]There are two ways of looking at this. Although there was a representation in recital A of the Licence Agreement that the SCFB was covered by a European patent, the operative part of the Licence Agreement made it plain that Global Flood would not be licensed under any granted European patent. Global Flood cannot have been induced to enter the Licence Agreement by reason of that combined representation. Alternatively, and probably more realistically, an informed reader of the document would have realised that recital A made no sense in the context of the operative terms of the Licence. He or she would, with very little effort, have discovered that the only subsisting patent right owned by BV or Mr Van den Noort was the PCT Application, i.e. the thing being licensed. There was accordingly no representation about any subsisting European (or United States) patent.[67]Mr Hicks argued that having read recital A the reasonable reader of the Licence Agreement would have assumed that there was an implied term in the operative part of the licence, namely that notwithstanding the words of article 1.2 Global Flood was also granted a licence under the European (and United States) patent. I do not accept this. It is well established that clear words in the operative part of a contract cannot be controlled by recitals, see Leggott v Barrett (1880) 15 Ch. D. 306 (CA), at 311. Article 1.2 is unambiguous. Mr Hicks made no reference to the law on implied terms. Bearing in mind the clear words of article 1.2, I am not at all satisfied that the implied term proposed would spell out in express words what the Licence Agreement read against the relevant background would reasonably be understood to mean (see Att-Gen of Belize v Belize Telecom Ltd [2009] UKPC 10; [2009] 1 W.L.R. 1988, in particular at [21]).[68]That takes me to the legal advice from Mr Price. Irrespective of what Mr Price said and whether Mr Kelly relied on it, the claimants cannot establish an actionable misrepresentation unless there was a false representation of fact in the first place which could have induced Global Flood to enter into the Licence Agreement. For the reasons I have given there was not.[69]I do not agree with Mr Alkin’s argument that once legal advice had been taken the claimants’ case on misrepresentation fell away because Global Flood was relying on the advice, not any representation contained in the Licence Agreement or earlier emails. This implies that even if there had been an unmistakeable misrepresentation in the Licence Agreement, once Mr Kelly took legal advice it ceased to be actionable.[70]I think the advice given by Mr Price is not relevant to what I have to decide. If the advice was poor and led Mr Kelly into a mistaken belief as to whether there had been one or more actionable misrepresentations by the defendants, this may or may not raise a separate issue. I need say nothing about that.[71]In summary, I take the view that an earlier misrepresentation by the defendants with regard to the European patent was either corrected by the Licence Agreement or alternatively was replaced and overridden by a representation which cannot have induced Global Flood to enter the Licence Agreement.

The second alleged misrepresentation: a new patent had been granted protecting the SCFB

[72]The claimants rely on what was said at a meeting at Schiphol airport on 31 August 2010. Those present were Mr Kelly and Sarah Marriott who was a director of UKFB from 2009, together with Mr Van den Noort and his son. Minutes were taken which record the following:
“[BV] has received a new patent for the SCFB. Before November 13th [BV] has to choose the countries which should be covered by the new patent. The investment for the PCT Patents will be between one hundred and two hundred thousand Euros depending on the number of countries that has to be covered.”
[73]Although the claimants rely on what was actually said at the meeting, the minutes are all there is to go on by way of reliable evidence, so they must be interpreted on their face. Just as Mr Kelly cannot rely on his own idiosyncratic interpretation of the Licence Agreement, in my view, given that the discussion at Schiphol concerned matters outside Mr Kelly’s area of expertise, they must be construed through the eyes of someone who does have that expertise. I think an informed person would have realised that Mr Van den Noort (or Ms Marriott) was using loose language when referring to “a new patent” and stating that BV had to choose the countries that would be covered by this new patent and also that the cost of this selection of countries to be covered by “the PCT Patents” would vary depending on the number of countries. Such a person would have realised that Mr Van den Noort was talking about a new PCT Application and that as a result, for some time to come there would be no protection anywhere under any granted patent, if ever, depending on whether patents were to be granted.[74]Accordingly I do not accept that a false representation was made at Schiphol in August 2010 as alleged. Even if it had been, such representation would have been corrected by the Licence Agreement, both in recital A and in article 1.2.

The third alleged misrepresentation: the SCFB was protected by a US patent

[75]The claimants plead that this alleged misrepresentation was made orally before the Licence Agreement was signed and also in recital A, both in the drafts of the Licence Agreement and in the Licence Agreement itself. What matters is the representation contained in the Licence Agreement itself. For the reasons explored in relation to the European patent, either there was no representation in the Licence Agreement that there was a subsisting US patent, or alternatively the representation made was such that it could not have operated on the mind of Mr Kelly such as to induce Global Flood to enter the Licence Agreement.[76]As with the other heads of alleged misrepresentation, in my view the claimants’ difficulties stem from having failed to obtain sound legal advice at an appropriate stage.

Counterclaim for outstanding royalties

[77]The only pleaded defence by Global Flood to BV’s counterclaim for outstanding royalties due for the year 2013 is that BV is disentitled to royalties because of the alleged misrepresentations. Mr Hicks sought in his closing speech to raise a further argument on the construction of the Licence Agreement. Mr Alkin responded firstly by saying that this argument was susceptible of evidence regarding the background factual matrix and secondly he said that had it been raised on the pleadings it would have been met with a defence of estoppel by representation, which would require evidence regarding the parties’ understanding and evidence of reliance.[78]In this court it will be rare that a party will be permitted to raise a new unpleaded argument in closing. I see no exceptional reason to allow the argument in this instance and I think that Mr Alkin may be right in saying that it could be met by an allegation of estoppel which would require evidence. I do not give permission to the claimants to advance the new argument on construction. The counterclaim for royalties succeeds.

Conclusion

[79]The claim for threats of unjustified patent infringement proceedings is adjourned. The claim for misrepresentation fails and the counterclaim for outstanding royalties succeeds.

Cited in 1 later judgment