Penalties imposed on director were harsh but still enforceable

Financial penalties imposed on a company’s former director after he breached a settlement agreement were harsh but still enforceable.

That was the decision of the High Court in a case involving Permanent Ltd and Greenhill Industrial Holdings Ltd v Stephen John Makin.

Permavent and its subsidiary Greenhill supplied products to the construction industry. Makin had owned a third of Permavent and had been Greenhill’s managing director. He invented roofing products, some of which he patented and granted Greenhill a licence to manufacture, use, sell and supply.

An email from 2012 indicated that he believed Greenhill should own the patents. When his relationship with the Greenhill's other director deteriorated in 2016, they decided to part ways and find a buyer for the Makin's share of Permavent.

A dispute arose as to who owned the intellectual property (IP) rights in the roofing products. The products were critical to the companies' long-term success, and the prospective purchaser of the Makin's shares was not willing to proceed unless the issue was resolved.

The court heard evidence that Makin became abusive and threatened to make life for the companies as difficult as possible. He resigned his directorship and contacted third parties to warn them off the roofing products.

Greenhill claimed for a declaration that it owned the IP rights in the products. In 2017, the claim was settled by an agreement recording that Permavent would buy the Makin's shares for £620,000; he would assign all IP rights in the roofing products to Permavent; and it would pay him 5% of the monies received concerning future sales of the products.

Under the agreement, Makin promised not to claim any entitlement to or interest in the IP rights or challenge ownership. If he breached those promises, the 5% entitlement would end, he would be obliged to repay any sums received under that entitlement, and he would become immediately liable to pay £616,667 to Permavent.

In 2018, Makin registered an interest in five of the patents at the UK Intellectual Property Office. Permavent and Grenhill obtained summary judgment against him for breaching the settlement agreement.

They then sought to enforce Makin’s repayment obligations under the agreement, which he asserted were grossly disproportionate penalties.

The court found in favour of Permavent. It held that no aspect of the agreement was out of proportion to the protected interest. The penalties they imposed on Makin, were harsh and damaging, but were not so out of proportion with the potential consequences for the companies to make them unenforceable.

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