HomeInsightsHigh Court finds that a domain name is intangible personal property

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Facts

Blackjack is the most popular card game played in casinos worldwide.  Online gambling had led to the domain name www.blackjack.com gaining value.  The dispute related to ownership of that domain name.

In April 2003, Hanger Holdings (HH) entered into a written agreement governed by English law with Perlake Corporation SA, a Uruguayan company, pursuant to which HH agreed to transfer its online gaming business trading under the domain name “blackjack.com” (the Domain Name) to Perlake. HH also agreed to transfer the website from which it conducted the business, the Domain Name, its customer data and the goodwill in the business associated with the Domain Name (that goodwill referred to by the parties as the Trade Mark). No registered trade marks were identified. HH was to be paid consideration of US$250,000 and to receive a percentage of revenue generated by the business by way of commission.

The US$250,000 payment was made in 2005 and the Domain Name and Trade Mark were assigned to Perlake the same year.

The 2003 agreement contained a term providing that HH was entitled to terminate if Perlake committed a material breach. There was a proviso that if the breach was capable of remedy, HH was obliged to give written notice specifying the breach and requiring it to be remedied; if Perlake failed to effect a remedy within 30 days of the notice the agreement would terminate. Thereupon HH would be entitled to all rights in the Domain Name and the Trade Mark.

In 2015 Perlake was put into liquidation.  It played no part in the proceedings, which were effectively against the Second Defendant, Mr Croft, the owner and former sole director of Perlake.  He was also its liquidator and in October 2015 he was recorded as registrant of the Domain Name.

In August 2018, HH issued proceedings against Perlake as a result of non-payment of any commission on income as required under the 2003 agreement. HH sought a declaration that, as a result of material, irremediable breaches by Perlake and subsequent termination of the 2003 agreement, it had become the owner in equity of the Domain Name and the Trade Mark and was therefore entitled to call for the transfer of the legal titles to both those rights. It also argued that no transaction in respect of the Domain Name or Trade Mark since then, even if valid, had disturbed its equitable ownership.

HH said that the agreement had terminated as a result of a letter it had sent to Perlake dated 5 August 2015 in which it had complained that Perlake was in breach by failing to: (i) keep records of the operation of the business; (ii) to provide audited statements; and (iii) to pay appropriate commission as required by the 2003 agreement.

Decision

Perlake denied that it had committed any breach, or if it had, asserted that such breach was neither material nor irremediable, meaning that HH was not entitled to terminate. Perlake also said that a domain name was not property in which equitable ownership could arise.

His Honour Judge Hacon held that, on the facts and evidence, Perlake had indeed failed to provide financial statements, meaning that HH could not assess the amount of any commission due. In HHJ Hacon’s view, the breach was material.

The evidence also showed that Perlake had failed to keep financial records of the business for a substantial part of the time during which it was conducted and there was no evidence of any alternative source of the relevant financial information. HHJ Hacon found that this material breach could not therefore have been remedied as at August 2015.

Accordingly, the breach was material and irremediable. The agreement was therefore terminated on the deemed dated of service of the letter, 11 August 2015.

As for the Domain name and the Trade Mark, HHJ Hacon said that there was no doubt that a domain name could be freely traded (unlike phone numbers which were not generally bought and sold). The question was whether a domain name was personal property. HHJ Hacon agreed with obiter remarks made in OBG Ltd v Allan [2007] UKHL 21, that a domain name may be intangible property. HHJ Hacon also referred to the Court of Appeal of Ontario’s ruling in Tucows.com Co v Lojas Renner [2011] ONCA 548, which included a detailed review of judicial and academic consideration in several jurisdictions, including England (mentioning OBG), and in which it was held that a domain name did indeed constitute property. HHJ Hacon concluded that a domain name was therefore intangible personal property and thus HH had an equitable interest in it, not merely a contractual right to have it transferred.

As for goodwill, HHJ Hacon noted that it was well established that goodwill was intangible personal property that could be assigned from one entity to another. Therefore, upon termination of the 2003 agreement, HH had acquired an equitable interest in the Domain Name and the Trade Mark. No transaction or purported transaction since then had deprived HH of that equitable interest. It was therefore entitled to call for the assignment to it of the legal interest in each of those rights and related relief. (Hanger Holdings v Perlake Corporation SA [2021] EWHC 81 (Ch) (19 January 2021) — to read the judgment in full, click here).

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