Guy Neale & Ors v Ku De Ta SG Pte Ltd [2015] SGCA 28

The recent Singapore Court of Appeal decision, Guy Neale & Ors v Ku De Ta SG Pte Ltd, involved the right to use the name “Ku De Ta” in respect of popular dining and nightlife establishments in Singapore and Bali, respectively. The appellants were the members of a partnership that owned and operated the restaurant, bar and club known as Ku De Ta in Bali since 1999 (the “Bali owners”). The respondent was the operator of the Ku De Ta outlet at Marina Bay Sands, Singapore (the “Singapore operator”), which had opened its doors in 2010.

The Bali owners sought, among other things, to restrain the Singapore operator from continuing to use the “Ku De Ta” name in Singapore, in particular, in relation to the Ku De Ta outlet at Marina Bay Sands. In resisting the Bali owners’ claim, the Singapore operator asserted that it held an exclusive licence for the use of the “Ku De Ta” name.

The Court of Appeal found that the Singapore operator could not assert its right to use the “Ku De Ta” name against the Bali owners.

The Court of Appeal’s key findings were as follows:

  • Once a third party has been put on enquiry in respect of certain unregistered interests under the Trade Marks Act (the “TMA”) by reason of his knowledge of suspicious circumstances, the burden is on him to make enquiries that are reasonable in the circumstances.
  • An equal shareholder and common director may not necessarily have the authority to act on behalf of the company.
  • An exclusive licensee of a trade mark under the TMA does not acquire a proprietary interest in it.

Allen & Gledhill Partners Ang Cheng Hock, SC, William Ong and Kristy Tan represented the successful appellants.

Key facts

Registration of trade marks under Nine Squares

Without the knowledge of the rest of the Bali owners, one of the owners/partners, Arthur Chondros (“Chondros”), registered two trade marks in Singapore containing the “Ku De Ta” name (the “Singapore Marks”), under the name of Chondros’ vehicle, Nine Squares Pty Ltd (“Nine Squares”). One of the Singapore Marks was registered for use in relation to restaurant services. Chondros and another individual, Daniel Ellaway (“Ellaway”), were the directors and equal shareholders of Nine Squares.

The licence agreement and subsequent assignment to use the “Ku De Ta” name

Without Chondros’ knowledge, Ellaway caused Nine Squares to enter into a licence agreement with a businessman known as Chris Au (“Au”), for the use of the Singapore Mark in relation to restaurant services. The licence agreement granted Au an exclusive licence to use the “Ku De Ta” name.  Au subsequently assigned the exclusive licence to the Singapore operator.

Ellaway later resigned as a director of Nine Squares and divested his shareholdings in Nine Squares.

Nine Squares held Singapore Marks on express trust for Bali owners

In late 2010, the Singapore operator opened the nightclub styled as Ku De Ta at Marina Bay Sands. When the Bali owners found out, they brought a suit against Nine Squares and the Singapore operator respectively. Both suits were heard together before the Singapore High Court. In December 2014, the Court of Appeal found that Nine Squares held the Singapore Marks on an express trust for the Bali owners, and directed Nine Squares to transfer the Singapore Marks to the Bali owners. The Bali owners subsequently perfected their title by becoming the registered proprietor of the “Ku De Ta” name in Singapore. Please click here to read an article entitled “Singapore Court of Appeal finds respondent held trade marks for “Ku De Ta” on express trust for appellants” in a previous issue of the Allen & Gledhill Legal Bulletin (January 2015).

Parties’ arguments

The Singapore operator argued that the exclusive licence conferred upon it a proprietary interest in the “Ku De Ta” name. It further argued that, since it had acquired this interest in good faith, for value and without notice of the Bali owners’ beneficial interest in the “Ku De Ta” name, it enjoyed the special legal position known as “equity’s darling”, and its interest would accordingly take priority over that of the Bali owners. The doctrine of “equity’s darling” normally applies to protect purchasers who acquire proprietary interests in good faith and without notice of the prior interest. The Bali owners on the other hand submitted that the exclusive licence only conferred contractual rights on the Singapore operator and that, in the contractual realm, such contractual rights could not bind the Bali owners, who were not party to the contractual licence. The Bali owners further argued that, even if the doctrine of equity’s darling applied, the Singapore operator did not qualify as equity’s darling because it had not acted in good faith.

Key issue

The key issue before the Court of Appeal was whether the Singapore operator could show that it had a right to use the “Ku De Ta” name that was effective against the Bali owners. The legal question was whether, and if so in what circumstances, the holder of an exclusive licence granted by the legal owner of a registered trade mark (which, in this case, had been Nine Squares), could prevail against the rights and interests of the beneficial owners (the Bali owners) of that mark.

Judgment

The Court of Appeal held that the Singapore operator could not assert its rights against the Bali owners. Therefore, the Bali owners were entitled to stop the Singapore operator from using the “Ku De Ta” name. In reaching its conclusion, the court made the following key findings:

  • Once a third party has been put on enquiry in respect of certain unregistered interests under the TMA by reason of his knowledge of suspicious circumstances, the burden is on him to make enquiries that are reasonable in the circumstances. One of the key questions before the court was whether the Bali owners, as equitable owners, had a stronger right than the Singapore operator, in its capacity as an exclusive licensee. The Court of Appeal began with the proposition that it is notalways or necessarily the case that the interest of an equitable owner of a trade mark, who seeks to perfect his title, will trump the subsequent rights of a licensee of a trade mark whenever the former predates the latter. It depends on the facts of each case. The present contest between the interest of the Bali owners and the rights of the Singapore operator under the licence agreement was determined by a consideration of the competing equities at the date on which a valid and binding licence agreement was entered into (the “relevant date”).

Once a third party has been put on enquiry in respect of unregistered interests (such as, in this case, the Bali owners’ equitable interests) by reason of his knowledge of suspicious circumstances, the burden is on him to make enquiries that are reasonable in the circumstances. The court made important observations where a person is affected by constructive notice in commercial dealings with personal property, where the facts known to the purchaser made it imperative to seek an explanation, without which it is obvious that the transaction is probably improper. Where such person has a doubt about the propriety of the transaction or representations made to him, it does not help by asking the representor or his agents to “quell the doubt” because if one does so, one is not making a genuine enquiry to discover the truth but is simply seeking reassurance from the source of the representations.

In this regard, the Court of Appeal did not find the Singapore operator’s enquiries to be reasonable (or even genuine). The Court of Appeal noted that Au had been alerted that both the beneficiaries (the Bali owners) and the trustee (Nine Squares, through its directors) had expressed the view that the trustee did not own the beneficial interest in the Singapore Marks and was not entitled to deal with it freely. Not only did Au fail to make the necessary enquiries, he knowingly embarked on a course of action designed to undermine the Bali owners’ position. The court found that Au knew or ought, in the circumstances, to have known of the fact that the Bali owners were the beneficial owners of one of the Singapore Marks.

  • An equal shareholder and common director may not necessarily have the authority to act on behalf of the company. In determining the relevant date on which to compare the competing equities, the court had to decide whether the execution of the licence agreement on the relevant dates was a legitimate and valid corporate act of Nine Squares. This in turn depended on whether Ellaway had actual (whether express or implied) or apparent authority to bind Nine Squares to the licence agreement. In this regard, the Court of Appeal held that Ellaway was a common director who did not have any authority to bind Nine Squares to the licence agreement with Au. The court found it relevant that Nine Squares never made any representation that Ellaway had the authority to conclude the licence agreement. There was no express actual authority to cause Nine Squares to enter into the licence agreement. He was never formally appointed as the managing director of Nine Squares and neither was he a de facto managing director. The fact that Au and his business acquaintance, Patel, who was involved in some of the negotiations, did not believe that Ellaway had the authority was also a factor that the court took into account.
  • An exclusive licensee of a trade mark does not acquire a proprietary interest in it. The court held that an exclusive licensee of a trade mark does not acquire a proprietary interest in it. As such, the exclusive licence obtained by the Singapore operator under the licence agreement for the use of the “Ku De Ta” name gave rise to only contractual rights. Since the Bali owners were not parties to the licence agreement, the Singapore operator could not enforce its contractual rights under the licence agreement against the Bali owners. The court opined that the Singapore operator’s recourse should be against Nine Squares, who was party to the licence agreement, and who had granted the exclusive licence to Au in breach of the express trust which it held for the Bali owners.

Practical impact

  • Make objective enquiries. The Court of Appeal’s decision has significance for the doctrine of constructive notice in commercial dealings with personal property, where a contracting party is put on notice of the existence of a prior interest by reason of suspicious circumstances. Where such a person has a doubt about the propriety of the transaction or representations made to him, it does not help to ask the representor or his agents to “quell the doubt” because if one does so, one is not making a genuine enquiry to discover the truth but is simply seeking reassurance from the source of the representations. Even if one obtains such assurance, one would probably be put on notice nonetheless and cannot rely on the doctrine of equity’s darling. Therefore, in such circumstances, objective enquiries (apart from asking the representor or contract counterparty) should be made to ascertain whether there are grounds for concern.
  • Obtain necessary warranties. The other effect of the Court of Appeal’s decision is that rights which do not appear on the Register of Trade Marks can, in certain circumstances, prevail over rights obtained from the registered proprietor of a trade mark. Such unregistered rights can, most commonly, take the form of a beneficial interest under a trust, such as that held by the Bali owners in the present case. It is therefore important for licensees and assignees of registered trade marks to obtain warranties within the licence or assignment contract that the registered proprietor of the trade mark owns the full legal and beneficial interest in that trade mark, or that if the registered proprietor of the trade mark is acting as a trustee, that the registered proprietor has obtained all necessary consents and authorisation under the trust. The fact that the registered proprietor’s name appears on the Register of Trade Marks does not, per se, mean that he is the beneficial owner of the trade mark.
  • Register beneficial interests. Further, holders of beneficial interests in registered trade marks under an express trust may wish to take steps to register their beneficial interests on the Register of Trade Marks. This can be done pursuant to section 40 of the TMA. Doing so will make it more difficult for a person acquiring a later interest in the registered trade mark (such as under a licence agreement) to argue that he had no knowledge of the beneficial owner’s prior interest.