Facts

Lifestyle Equities CV, incorporated in the Netherlands, issued proceedings against Hornby Street (MCR) Ltd and others, including Santa Barbara Polo Club (SBPC) (the Defendants), for passing off and for infringement of its registered trade marks in the UK and the EU for the words BEVERLY HILLS POLO CLUB (the BHPC Word Mark) and the following logo registered for a variety of goods, including clothing (the BHPC Logo) (together the Trade Marks):

The Trade Marks were originally owned and used by a Californian entity called BHPC Marketing, which also owned several US registered marks protecting the BHPC Logo.

In the mid-1990s, a dispute arose between BHPC Marketing and SBPC, which is a sports and social club established in 1911 and which owned several US registered trade marks for the following logo (the SBPC Logo):

To resolve the dispute, the parties entered into a “co-existence agreement” in June 1997, in which they agreed to the use of their respective logos and ownership of their US registered marks. The agreement also included an arbitration clause, which provided that any dispute relating to the agreement should be resolved by arbitration in Los Angeles, in accordance with the rules of the American Arbitration Association. The governing law was said to be Californian law.

In 2008/9, the Trade Marks were assigned from BHPC Marketing, which by then had become BHPC International LLC, to Lifestyle. Lifestyle said that it was not made aware of the existence of the 1997 agreement at this point.

In April 2013, Lifestyle became aware that SBPC had applied to register the SBPC logo as an EU trade mark and complained to SBPC. SBPC informed Lifestyle of the 1997 agreement and sent it a copy.

In 2015, Lifestyle applied to register the Trade Marks in Mexico. SBPC consented in writing to the registration at Lifestyle’s request. The consent letter also stated that “Lifestyle Equities CV (through its predecessor entity), and SBPC are parties to a worldwide coexistence agreement dated October 6, 1997, and pursuant to that agreement SBPC consents to this registration”. The 1997 agreement was attached to the letter.

Five years later, in June 2020, Lifestyle issued these proceedings against the Defendants.

Lifestyle argued that the Defendants had used the SBPC logo without consent from Lifestyle. It asserted that: (i) it was not a party to the 1997 agreement; (ii) it did not know of the 1997 agreement when the Trade Marks were assigned to it; and (iii) by reason of Article 27(1) of the Trade Mark Regulation (2017/1001/EU) and s 25(3)(a) of the Trade Marks Act 1994, the 1997 agreement was not binding on it when the Trade Marks were assigned to it.

The Defendants applied for a stay of the claim pursuant to s 9 of the Arbitration Act 1996, arguing that: (i) under Californian law, Lifestyle was bound by the 1997 agreement as assignees of the Trade Marks; and (ii) by reason of Lifestyle’s reliance in 2015 on the 1997 agreement to obtain the letter of consent to registration of trade marks in Mexico, it was bound by the 1997 agreement by virtue of the operation of the doctrine of equitable estoppel under Californian law.

At first instance, having heard expert evidence on Californian law, His Honour Judge Hacon decided to stay the claim, concluding that the 1997 agreement could be enforced against Lifestyle.  He gave three reasons for that conclusion

• that Lifestyle had become a party to the 1997 agreement by virtue of its 2015 dealings with SPBC
• that Californian law applied to whether Lifestyle was bound by the arbitration clause in the 1997 Agreement and
• that the Californian law principles of equitable estoppel precluded Lifestyle from denying that it was bound by the 1997 agreement.

Lifestyle appealed to the Court of Appeal.

Decision

Was Lifestyle a party to the 1997 agreement?

Giving the lead judgment, Lord Justice Snowden held that HHJ Hacon had been wrong to find that Lifestyle had become a party to the 1997 agreement as a result of the correspondence with SBPC in June 2015 over the issue of consent to the Mexican trade mark applications.

Snowden LJ noted that because, at first instance, it had not even been suggested by SBPC that Lifestyle was a party to the 1997 agreement, and there was no expert evidence of Californian law on the issue, HHJ Hacon should not have expressed his view of whether, if the matter had been governed by English law, Lifestyle would have been party to it.

Further, even if English law had been applicable, HHJ Hacon had not explained which principle of English law he had applied to reach his conclusion and, in Snowden LJ’s view, his conclusion was plainly wrong. As a matter of English law, where there are no express provisions for accession in an agreement, a person can only become a party to that agreement with the consent of all parties, i.e. by novation or by the making of a new agreement. There was no provision for accession in the 1997 agreement and no suggestion that BHPC Marketing had consented to Lifestyle becoming a party in such a way.  Lord Justice Lewison and  Lady Justice Macur agreed.

Was Lifestyle bound by the 1997 agreement?

At first instance, Lifestyle had argued that the relevant law was English law and EU law, whereas the Defendants had said it was Californian law.

HHJ Hacon had accepted the Defendant’s argument and had held that under Californian law an arbitration clause in a co-existence agreement was a burden that attached to a US or non-US trade mark, and that such burden had passed with the assignment of the Trade Marks and was binding on the assignee irrespective of whether the assignee knew of the agreement. Therefore, Lifestyle was bound by the arbitration clause in the 1997 agreement.

Snowden LJ disagreed with HHJ Hacon, finding that the law governing the Trade Marks was English law or EU law, depending on which Trade Mark was concerned. It was this law that applied to the substantive underlying dispute of whether the coexistence provisions of the 1997 agreement were binding on Lifestyle. It was therefore logical that the same law would apply to the question of whether Lifestyle was bound by the arbitration clause in the same agreement. Therefore, in Snowden LJ’s view, HHJ Hacon had been wrong to apply Californian law and Lifestyle was not bound to the arbitration clause in the 1997 agreement.

However, the other two justices disagreed with Snowden LJ on this point.

Lord Justice Lewison, with whom Lady Justice Macur agreed, noted that s 9(4) of the 1996 Act provides that the court “shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed”. Therefore, if (for whatever reason) the arbitration clause was not binding on Lifestyle, it would be “inoperative” against it.

The Defendants argument that Lifestyle was bound by the arbitration clause, relied on the law applicable to arbitration agreements, as set out in rule 64 of Dicey, Morris and Collins, which potentially allows for a distinction to be drawn between the law governing an arbitration clause and the law governing the substantive dispute. Lewison LJ said that the choice of law applicable to the arbitration clause was relevant to the question: who decides the substantive dispute? This was distinct from the question of which was the law applicable to the resolution of the substantive dispute. In this case, he said, it was only the first question with which the court was concerned.

In Lewison LJ’s view, a question over the scope or effect of the arbitration clause was a contractual rather than a proprietary question, meaning that the applicable law was that of the 1997 agreement, which was Californian law. Further, given the Justices’ agreement that the law governing the validity of the arbitration clause also governed the question who becomes party to it, it was logical to apply the same principle to the question of who was bound by it.

The parties to the 1997 agreement had chosen Californian law to govern their contract, including the arbitration clause. Californian law was therefore the applicable law, at least as the starting point for deciding who may be party to the arbitration. In Lewison LJ’s view, this was not a question of whose law of trade marks applied. It was a question of whose law of contract applied.

Having heard evidence from experts in Californian law, HHJ Hacon had held that in accordance with that law, Lifestyle, as successor in title to the Trade Marks, was bound by the arbitration clause and, in Lewison LJ’s view, with which Lady Justice Macur agreed, he was entitled to come to that conclusion on the evidence.

Equitable estoppel

Snowden LJ, with whom both Lewison LJ and Macur LJ agreed, held that HHJ Hacon had been wrong to find that Lifestyle was prevented from contending that it was not bound by the 1997 agreement as a result of the doctrine of equitable estoppel under Californian law.

In Snowden LJ’s view, HHJ Hacon had correctly identified the test to be applied, but had misapplied it. It was not in dispute that the equitable doctrine would only apply if Lifestyle’s claims of registered trade mark infringement and passing off were dependent upon or inextricably intertwined with the obligations imposed by the contract containing the arbitration clause, i.e.the 1997 agreement.

HHJ Hacon had referred to Lifestyle’s conduct in 2015 in representing to the Mexican IP Office that it was a party to the 1997 agreement, but in Snowden LJ’s view, Lifestyle’s conduct in Mexico in 2015 had nothing to do with the claims it was making in these current proceedings. Further, HHJ Hacon had been wrong to find that Lifestyle had “exploited” the 1997 agreement in its dealings with the Mexican IP Office, as it had not relied on the agreement as evidence of SBPC’s consent but had presented a separate letter of consent from SBPC. Further, Lifestyle’s claims in this litigation were not in any way dependent on anything in the 1997 agreement; Lifestyle was bringing its claims simply as registered proprietors of the Trade Marks.

Therefore, in Snowden LJ’s view, HHJ Hacon had erred in all his findings and, given Snowden LJ’s decision on the question of whether Lifestyle was bound by the 1997 agreement, the appeal should be allowed. However, given the dissent of Lewison LJ and Macur LJ in relation to the second question, and their finding that Lifestyle was so bound, the arbitration agreement was not “inoperative” under s 9(4) of the 1996 Act, meaning that the court was bound to grant the stay, as HHJ Hacon had held. The appeal was dismissed. (Lifestyle Equities CV v Hornby Street (MCR) Ltd [2022] EWCA Civ 51 (28 January 2022) — to read the judgment in full, click here).