A recent Court of Appeal decision has highlighted the problems caused by parties failing to assign documents properly. Stuart Pemble gives you fair warning
I suspect that it is rare for cases involving complicated intellectual property disputes to grace the pages of Legal Notes. But, don’t be put off, because Warren J’s decision in General Nutrition Investment Company v Holland and Barrett International Ltd and another [2017] EWHC 746 (Ch) makes an important point about something – an assignment of a legal right – that happens every day throughout the property industry.
The facts
The dispute centred on the use of the UK trademarks for “GNC” and “GNC Live Well” brands by the defendant (H&B), a retailer specialising in health and sports supplements. H&B used the trademarks in the UK under a licence agreement dated 6 March 2003. The claimant (GNIC) attempted to terminate that agreement and H&B disputed its ability to do so.
One of the problems GNIC faced was that it was not the original owner of the trademarks; nor was it a party to a separate agreement purporting to transfer the trademarks. That was a (now dissolved) company called GNIC Arizona Oldco which had, by means of a complex sale transaction and/or a licence agreement, purported to transfer the benefit of the trademarks to GNIC. Warren J was happy that these arrangements, taken collectively, amounted to an equitable assignment of the trademarks.
Assignment
However, no notice of assignment had been given to H&B. As such, neither GNIC Arizona Oldco nor GNIC had complied with section 136 of the Law of Property Act 1925, which states (among other things) that the other party to the agreement must be given notice of the assignment in order for the assignee (GNIC) to be able to enforce the rights being assigned in its own name.
Equitable assignments, on the other hand, require the assignee to join the assignor to any proceedings to enforce its contractual rights. That could not happen in this case because GNIC Arizona Oldco had been dissolved and no longer existed as a legal entity.
GNIC’s ability to terminate the licence agreement also faced a formidable jurisprudential obstacle in an earlier decision of the Court of Appeal – Warner Bros Records Inc v Rollgreen Ltd [1976] QB 430 – that an equitable assignee of a contract could not exercise an option granted under a contract because notice of the assignment had not been given to the party who granted the option.
The decision in Warner Bros had been subject to academic criticism and judges in the UK (particularly the decision of a different Court of Appeal in Three Rivers DC v Bank of England [1996] QB 292) and abroad, and Warren J considered them in considerable detail before stressing that the judges in Three Rivers had not overruled Warner Bros nor held that it was wrongly decided. He also noted that Three Rivers did not actually deal with the question of notice and that, despite the various criticisms levelled against Warner Bros, it is still cited as authority in leading texts dealing with the assignment of contractual rights (known as choses in action) including Halsbury’s Laws of England, Chitty on Contracts and Snell’s Equity. As such, he concluded that the decision was still good law.
In addition, and while acknowledging that it was not on precisely the same point as the issue before him because it dealt with the attempted exercise of an option rather than the attempted termination of the contract, he felt there were a number of similarities between Warner Bros and this dispute.
First, he emphasised the issue of fairness: it is only right that the other party to the contract knows to whom they owe contractual duties, a principle that relates to “the substantive contractual rights between the parties”.
Further, he felt that there was a close analogy between the exercise of an option and the exercise of a right to terminate a contract:
“Both bring about a change in the contractual relationship between the parties. In the former case, the pre-existing contract is extended; in the latter it is terminated. That is not a material distinction: in each case… the recipient of the relevant notice… is entitled to see that the potential change in his contractual position is brought about by a person who is entitled, and whom he can see to be entitled, to bring about that change.”
The significance of the decision
The simple message is clear: if you are the assignee of a contractual right, make sure that the assignment complies with section 136 of the Law of Property Act 1925. If you do not, then, notwithstanding the controversies over the issue (and Warren J acknowledged the possibility of an appeal),
as the law currently stands you will not be able to enforce the rights being assigned to you against the other party to the contract.
Notice is not the only requirement of section 136. In addition:
■ the assignment must be absolute (unconditional);
■ it must not purport to be by way of charge (mortgage)
only;
■ the rights to be assigned must be wholly ascertainable and must not relate to only part of a debt, or other legal chose in action; and
■ the assignment must be in writing and signed by the assignor.
There is no stipulation in the 1925 Act or in any of the cases as to whether the assignor or the assignee should give the notice.
However, in the light of General Nutrition and Warner Bros, it is clearly in the best interests of the assignee to ensure that notice is given. It is also prudent to have third party evidence that the notice is delivered and to ask the other party to acknowledge receipt of the notice of assignment.
Key points
■ A recent decision emphasises the importance of making sure that contractual notices comply with the Law of Property Act 1925
■ In particular, make sure that the other party is given notice of the assignment. Otherwise, the assignee might not be able to enforce the contract being assigned
Stuart Pemble is a partner at Mills & Reeve LLP
