When is an agreement void for common mistake?
Mr Justice Edwin Johnson has awarded summary judgment to John Lobb SAS in a dispute with John Lobb Limited over an agreement concerning the use of the John Lobb trade mark. This judgment (John Lobb SAS v John Lobb Ltd) reversed the decision of Deputy Master Marsh and clarifies the law on common mistake.
John Lobb Limited, which makes hand-made footwear, is named after its Australian founder and is owned by the Lobb family. John Lobb SAS was established in France in 1946, and sold to Hermès Group in 1976. The sale included a French trade mark for JOHN LOBB. Hermès subsequently applied for further marks around the world.
The parties signed an agreement in 1992, which lasted for 15 years. A further agreement was signed in 2008, but John Lobb Limited argued that it was void from the outset on the basis of common mistake – namely that both parties entered into the agreement “on the basis of a fundamentally mistaken and commonly held belief as to the ownership rights in the John Lobb Marks”. It claimed that John Lobb Limited in fact owned all the relevant trade marks, except for the French mark.
John Lobb SAS made an application seeking striking out or summary judgment on the basis that John Lobb Limited had no real prospect of success and there was no other reason for a trial. At first instance, the judge dismissed this application on the basis that the case was unsuitable for summary judgment and that a strike out order was not appropriate.
The judge’s findings
Edwin Johnson J disagreed with the Master's decision. In a detailed judgment, he concluded that John Lobb Limited had “no real, or indeed any, prospect of succeeding in its claim to avoid the 2008 Agreement on the basis of common mistake”. This conclusion was based on two reasons:
The risk of the Assumed State of Affairs turning out to be wrong was allocated to John Lobb Limited. Therefore, the claim that the 2008 Agreement was void from the outset on the basis of common mistake could not succeed.
The mistake of the parties as to the Assumed State of Affairs “did not either (a) render the 2008 Agreement impossible of performance or (b) render the subject matter of the 2008 Agreement essentially and radically different from the subject matter which the parties believed to exist”. The claim that the 2008 Agreement was void from the outset on the basis of common mistake could not therefore succeed.
He added there was no other compelling reason why John Lobb Limited’s claims should be disposed of at a trial, and John Lobb SAS was entitled to summary judgment. Consequently, John Lobb Limited’s claims should be dismissed.
In his reasoning, the judge notably said the first instance judge’s interpretation of the “common assumption” test was wrong. The two formulations of that test – impossibility of performance and essential and radical difference in the subject matter of the contract – are both “stringent” and are interlinked, he said. He stressed “the importance, in the present case, of concentrating upon the subject matter of the 2008 Agreement, and asking the question whether the mistake which the parties must be assumed to have made as to the ownership of the Trade Marks had the effect of rendering that subject matter essentially and radically different from the subject matter which the parties believed to exist.”
Clarifying IP ownership
While the issues in this case were complicated, they are by no means unusual in circumstances where successful fashion brands expand into new jurisdictions. In this case, the parties had apparently co-existed successfully for several decades before getting into a dispute over trade mark rights. The subsequent fallout is a reminder of the importance of discussing and clarifying the ownership of all IP rights in detail when signing agreements.