In the case of Oxonica Energy Limited v Neuftec Limited, the Court of Appeal was asked to interpret a patent licence. The decision in this case was confined to the facts and is not discussed further here. However, the case has wider implications for the future drafting of commercial agreements.
The Court of Appeal was asked to interpret the meaning of 'Licensed Product'. This was a defined term in the licence and was relevant to the calculation of royalties payable by Oxonica to Neuftec. The effect of the decision reached by the Court of Appeal was that this defined term was given two different meanings within the same patent licence: one meaning in the grant clause and a different meaning in the royalties clause. As justification for this decision, the Court of Appeal focused on the wording at the beginning of the definitions section, which read:
"In this Deed, the following words and expressions shall, except where the context otherwise requires, have the following respective meanings"
The Court of Appeal relied specifically on the words "unless the context otherwise requires" to give it the authority to re-define a defined term saying simply that the context required it. This effectively re-wrote the royalties section of the licence and was a costly decision for the losing party. The Court of Appeal also derived support from the recitals to the licence. These were brief, fairly generic and had been added by the parties as something of an afterthought towards the end of the drafting process.
The words "unless the context otherwise requires" or similar are used as a matter of course in commercial agreements. This case calls into question whether that practice should continue. One reason for using defined terms is to create certainty and minimise ambiguity in an agreement. Following this case, it seems the use of the phrase "unless the context otherwise requires" without a specific reason for doing so could undermine that objective.
The case is also a reminder that the courts will consider the recitals when interpreting an agreement. Care should be taken, therefore, when drafting these to ensure that they accurately reflect the background to the agreement and what the parties intend the agreement to mean.