Proprietary or Contractual? Examining the Nature of the Exclusive Licencee’s Rights in Guy Neale v Ku De Ta SG Pte Ltd

Proprietary or Contractual? Examining the Nature of the Exclusive Licencee’s Rights in Guy Neale v Ku De Ta SG Pte Ltd

The Singapore Court of Appeal recently had occasion to examine the nature of the rights granted to a licencee under an exclusive licence agreement in the case of Guy Neale & Ors v Ku De Ta SG Pte Ltd [2015] SGCA 28.

The issue in question before the Court of Appeal was whether the licensee under an exclusive licence agreement has a property right in the trade mark.  This would mean that the licensee may be able to enforce their rights in the trade mark against the world at large even when such rights are not provided for in the licence agreement.

The Court rejected this argument and held that a licence to exploit a registered trademark is purely contractual in nature and does not confer any property rights on the licencee. The exclusive licencee can therefore only enforce its rights in the trademark against parties to the licence agreement.

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The dispute concerned the use of the ‘Ku De Ta’ name. The appellants were the members of a partnership that owned and operated the popular Ku De Ta restaurant, bar and club in Bali (“the Bali Owners”). The Bali Owners were in turn managed in part by a company known as Nine Squares. Nine Squares was the registered proprietor of the ‘Ku De Ta’ name in Singapore. The respondent was, through a series of transactions, the operator of the Ku De Ta outlet at Marina Bay Sands, Singapore (“the Singapore Operator”).

Nine Squares had two directors, Chondros and Ellaway, who subsequently had a falling out. Without Chondros’ knowledge, Ellaway had subsequently caused Nine Squares to enter into an exclusive licence agreement with a businessman, Au, for use of the registered ‘Ku De Ta’ mark in Singapore in relation to restaurant services (“the Singapore Mark”). The exclusive licence to use the Singapore Mark was subsequently assigned by Au to the Singapore Operator.

Claim and Issues
On the strength of the assignment by Au to them, the Singapore Operators had then commenced operations of the Ku De Ta Singapore outlet in 2010. The Bali Owners then began a series of actions against the Singapore Operators in an attempt to restrain them from using the ‘Ku De Ta’ name in Singapore.

In the earlier judgment to a separate action, the Court had ruled that the Bali Owners were the beneficial owners of the Singapore Mark.[1] The Court had further found that the exclusive licence agreement between Nine Squares and Au was a breach of trust by Nine Squares, and ordered that the legal title in the Singapore Mark be transferred to the Bali Owners.[2] The combined effect of this was that the Bali Owners were now the legal and beneficial owners in the Singapore Mark. The central issue before the Court in this case was therefore to determine if the rights of the Singapore Operators (as an exclusive licencee granted in breach of a trust) could prevail against the rights and interests of the Bali Owners.

The Singapore Operator relied primarily on the fact that it was the assignee of an exclusive licence to the Singapore Mark. They sought to make the legal argument that the exclusive licence conferred upon them a proprietary interest in the ‘Ku De Ta’ name. Under the law, the bona fide purchaser for value, without notice, of a proprietary right takes priority over the rights of the beneficial owner (“the Doctrine of Equity’s Darling”). However, where the right in question is merely contractual in nature, and not proprietary, then the Doctrine of Equity’s Darling does not apply. The Singapore Operator’s case therefore hinged on whether they could prove that their rights under the exclusive licence agreement were proprietary in nature, and not merely contractual. In this case, the Bali Owners therefore argued that the exclusive licence merely conferred on the Singapore Operators contractual rights.

The Decision
The Court of Appeal found that while the rights granted to an exclusive licencee could be potentially far reaching, that did not render such rights proprietary in nature. Further, the Court also drew a distinction between real property – where the ability to control the access of third parties to the property is the defining characteristic of a property right – and intellectual property.

As such, the exclusive licence obtained by the Singapore Operator remained contractual in nature. Under the applicable legal principles, as the Bali Owners were not parties to the licence agreement, the Singapore Operators could not therefore enforce their rights under the licence agreement against the Bali Owners.

The Court also observed that the Singapore Operators had already been put on notice that the beneficial interest in the Singapore Marks did not reside with Nine Squares, and could not deal with it freely.[3] In this case, the Court noted that Au had been alerted that both the Bali Owners and the directors of Nine Squares had expressed the view that Nine Squares did not own the beneficial interest in the Singapore Mark. In such a situation, the Court found that a person has to make reasonable enquiries to discover the truth about the propriety of the transaction. In this case, Au had merely asked his agents to “quell his doubts” – the Court found that this was not a genuine enquiry to discover the truth, but merely seeking reassurance from the source of the representations.

This case serves as an authoritative pronouncement on the nature of the rights granted under a licence agreement. This finding indicates that while a trade mark, when registered, is a property right, the same is not true of a trade mark licence.

The Court of Appeal’s decision also has significance in determining when a contracting party is put on notice of the existence of a prior interest by reason of suspicious circumstances. In such a situation, objective enquiries must be made, and merely asking the representor to “quell the doubt” will not suffice.

[1] [2015] 1 SLR 1097

[2] Under the law of equity, legal title to a property and beneficial ownership in the same can be held by different parties. In such a scenario, legal title is said to be held by the legal owners as a trustee for the benefit and enjoyment of the beneficiary. In this case, legal title was held by Nine Squares on trust for the benefit of the Bali Owners.

[3] Under the principles of equity, the owners of legal title cannot freely deal with the property if they do not also hold the beneficial ownership in the property.