Oil company successfully restores former licensees to register of companies pending Texas court action

Lord Woolman
Lord Woolman

An oilfield tool manufacturing company has succeeded in its petition to restore its former licensees to the register of companies so that they could be the defendants in an action before the federal court of Texas in which they were the plaintiff.

MCR Oil Tools LLC alleged that members of the SPEX group of companies had sought to elide the terms of licence agreements it made with SPEX Offshore Ltd and SPEX Services Ltd, who were incorporated in Scotland, to allow them to use its intellectual property. SPEX appealed the interlocutor of the commercial judge who originally granted interlocutor to the Inner House of the Court of Session.

The appeal was heard by the Lord President, Lord Carloway, sitting with Lord Brodie and Lord Woolman.

Shared technology

The petitioner entered into licence agreements, governed by the law of Texas, with the licensees in 2009, 2011, and 2014. Under the agreements, they shared their technology and IP in return for acknowledgements that they would own any improvements or modifications developed by the licensee. The licensees were obligated to assign any such rights over to the petitioner.

From 2014 onwards, members of SPEX and their directors began filing patent applications relating to oilfield tools, which the petitioner considered to be modifications or improvements of their own technology. In late 2016 both licensees changed their names and entered into liquidation, and were ultimately dissolved.

In the claims before the Texas courts, the petitioner advanced multiple grounds of action against the respondents, with the general theme being that SPEX had orchestrated a scheme designed to avoid the restrictive obligations of the licence agreement and allow them to patent technology based on MCR’s technology.

In 2018, SPEX filed a brief to dismiss the case against the licensees on the basis that they were no longer in legal existence. As such, the claims for breach of contract and specific performance were not available. There was no purpose in restoring the companies because MCR would be unable to enforce any decree against the other defendants. The Texas action was stayed in respect to the licensees until the Scottish proceedings were complete.

It was highlighted that the test for whether it is just to restore a company to the register was summarised by the then Justice Neuberger in Re Blenheim Leisure (Restaurants) Ltd (No 2). He stated that regard should be had to the nature of the application to remove its name from the register, the reasons for the application to restore, the events since dissolution, and whether restoration would do any good.

It was further observed that, absent special circumstances, restoration should follow, and that even a highly speculative claim that was not fanciful would pass the test. So long as the prospects of the claim were more than “merely shadowy”, the company should be restored to allow another court to deal with the arguments.

It was not disputed that the petitioner was entitled to bring restoration proceedings by virtue of being a potential creditor of the licensees. They argued that the claim met the test of being more than “merely shadowy”. If the Texan court granted orders against the licensees that the patents filed by SPEX constitute “improvements or modifications”, then MCR could trace its rights through the licensees to whichever companies now purport to hold them.

The petitioner also submitted that their breach of contract claims would be easier to achieve against the contractual signatories to the licence agreements, and that all their claims before the Texas courts had legal merit and an adequate evidentiary basis. The respondents submitted that the “merely shadowy” test covered the law as well as the facts, and that any attempt to pierce the corporate veil was bound to fail.

More than “merely shadowy”

The opinion of the court was delivered by Lord Woolman. He began by limiting the court’s judgment to matters outside the Texas proceedings, saying: “We decline [the respondents’] invitation to examine the law, the Texan pleadings and the affidavits for the following reasons. As to the law, it would require a level of analysis which is inappropriate to these proceedings. It is precisely the type of exercise that the authorities warn against. As to the pleadings, the TAC discloses a complex interplay between the counts and the remedies. We do not have confidence that, not being schooled in Texan jurisprudence, we could properly evaluate the written pleadings.”

Regarding the “merely shadowy” test, he said: “We see nothing in the circumstances to warrant this case being placed into the exceptional category. We are therefore satisfied that the test is met. MCR’s claims are more than merely shadowy. In this opinion we have tried to avoid trespassing beyond our jurisdiction. For the reasons given, we express no view on the issues which will be determined by the Texan court. We conclude that it is just to restore the licensees to the register of companies.”

For those reasons, it was concluded that the commercial judge had correctly exercised his discretion when the case originally came before commercial court. The reclaiming motion was refused, and the original interlocutor was adhered to.

© Scottish Legal News Ltd 2020

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