Cooper & Ors v Fanmailuk.Com Ltd & Anor

The preliminary issue directed by Mr Robert Englehart QC (order dated 22 May 2008) and tried by Sales J at an 8 day hearing (including 6 days of evidence) in November 2008 was whether Fanmailuk.com Limited (Fanmail) was the beneficial owner of the four issued shares in Dialtime Plus Limited (DPL). No share in DPL was registered in the name of Fanmail. Each share was registered in the name of a different individual. Fanmail claimed that the four shares were held on a resulting trust for it. In his judgment handed down on 17 December 2008 the judge upheld Fanmail’s claim.

The shares were issued as long ago as 17 September 2001 when DPL, an “off-the-shelf” company, was set up by a company formation agent on Fanmail’s instructions to develop and exploit “the Dialtime idea” as it came to be called. But it was not until 2006 that Fanmail launched these proceedings. The judge said that, in view of the lapse of time, he gave particular weight to the contemporaneous documentation in assessing the evidence of the witnesses.

It was common ground that the beneficial ownership of the shares had to be determined as at the date when the shares were originally allotted in 2001. In the absence of a legally binding express agreement about beneficial ownership it was for the court to ascertain from all the surrounding circumstances the intentions of those who participated in the transactions and other relevant events. The circumstances included not only the consideration directly given for the shares, but also the complete canvas of the genesis of the Dialtime idea and DPL. The collective common intention had to be objectively established by means of reasonable inferences from evidence of what the participants actually did and what they said to one another: see Gissing v. Gissing [1971] AC 886 at 906 per Lord Diplock.

Four individuals were registered as the holder of one share each in DPL.

The first was Mr Paul Burtenshaw. He was chairman of, and principal shareholder (almost 40%) in, Fanmail, which was incorporated in November 2000. It was formed to develop a marketing idea - the use of email contact with football fans in connection with marketing football clubs and sport generally. By the early part of 2001 Fanmail was looking to develop a portfolio of business ideas. New technology, such as the integration of mobile phones, could be used to develop new marketing and promotional approaches.

Mr Burtenshaw was a director of related firms and companies: Burtenshaw Associates, a firm of quantity surveyors set up in 1987; Burtenshaw Associates Limited, a corporate vehicle for that partnership business; and Scratch X Limited (Scratch X), an off-the-shelf company acquired in 2000. Scratch X was subsequently used by Fanmail as its corporate operating vehicle for the development of a new gaming concept involving an on-line scratch card. The significance of Scratch X is that the judge found that it was a Fanmail business model for carrying forward its business ideas. The model enabled Fanmail both to retain the benefit of commercial control over the development of particular ideas through an operating company and to use incentive shareholdings in the operating company for important contributors.

Mr Burtenshaw’s partners in Burtenshaw Associates were also to take small percentage shareholdings in Fanmail. That reflected the supply of resources by Burtenshaw Associates to Fanmail. From March 2001 Fanmail operated from that firm’s London offices.

The second shareholder in DPL was Mr Ahmed Zghari. He is a chartered surveyor, who had worked for Burtenshaw Associates since November 1999. He had a good understanding of computer systems, software and email marketing applications. He was the de facto chief executive officer of Fanmail being also a director and a 20% shareholder. He was also a director and shareholder of Scratch X. He was the author of a business plan for Scratch X and of an investment proposal drawn up in July 2001, in which Scratch X was described as a subsidiary company of Fanmail. The judge found that Mr Burtenshaw and Mr Zghari intended to hold their shares in Scratch X, not jointly for themselves, as Mr Zghari said in evidence at the trial, but for the benefit of Fanmail.

Mr Zghari was the main source of the technical ideas and concepts that Fanmail was seeking to identify and develop. The judge found that he was regarded by Mr Burtenshaw and the appellant Mr Bob Cooper as a fund of useful ideas, which could potentially be developed by Fanmail. Although paid a salary by Burtenshaw Associates, Mr Zghari spent a good deal of his time working on ideas for Fanmail, drafting business plans and presenting ideas to investors and potential trading partners.

Mr Bob Cooper was the third shareholder. He first came into contact with Mr Burtenshaw in 1999 through a shared interest in football (Norwich City Football Club). He became a shareholder in Fanmail, having made a substantial capital investment in 2000 of £100,000 in return for 10% of the shares for himself and his wife. With his other commitments he did not wish to be a director of Fanmail. His business and retail marketing experience was very extensive. He had been a director on the main board of Sainsbury’s from 1988 to 1998. He had been involved in developing and supporting new business ideas and products. However, the judge found that he had little to contribute on the technical side to the identification and development of the ideas worked on by Mr Zghari. In 2002 he took a transfer of Mr Zghari’s one share in DPL.

Mr Bob Cooper had useful contacts. He introduced Mr Burtenshaw and Mr Zghari to Ms Caroline Townley of Active Rights Management. She had experience in the management of sports rights and data. She was issued with 8.79% of the shares in Fanmail in lieu of payment for her services. She had frequent contact with Mr Zghari from the early part of 2001.

Mr Bob Cooper’s contacts with Fanmail developed further when his son David became an employee of Fanmail in November 2000. Mr David Cooper later gave instructions on behalf of Fanmail for the setting up of DPL. He worked with another employee of Fanmail, Ms Tracy Ferneyhough, a graphic designer, who joined Fanmail as a creative director in March 2001.

The fourth shareholder was Ms Yvonne Wayne. She was a nominee of the company formation agent. She did not contest Fanmail’s claim or take any part in the proceedings.

Mr Burtenshaw supported Fanmail’s claim to be beneficially entitled to all four shares on the basis of a resulting trust that gave effect to the collective common intention that Fanmail would be the beneficial owner of the shares. Mr Zghari and the Coopers, father and son, opposed it. Their response to the preliminary issue was that, as registered holders of the shares, they were beneficially entitled to them in default of a concluded agreement that the shares should belong to somebody else. However, the judge only had to decide the preliminary issue relating to Fanmail’s claim to beneficial ownership. He did not have to decide positively who was beneficially entitled to the shares, if he rejected Fanmail’s claim.

In upholding Fanmail’s claim the judge found that

“220.

..the common intention was that the shares in DPL held by the individuals should be held in such a way as to allow DPL to be treated as part of the Fanmail association of companies and in such a way as to allow for the Dialtime business opportunity which DPL was to develop and exploit to be presented as one of the business opportunities which Fanmail could put before investors. This intention both reinforces and is reinforced by the presumption that a resulting trust arose by virtue of the use of Fanmail’s assets to set up DPL.”

The judge’s overall conclusion and detailed findings of fact made by him on the route to that result are appealed by Mr Bob Cooper. The grounds of appeal include criticisms that the judge’s analysis of the evidence on key points was flawed and that he failed to deal thoroughly, or at all, with particular items of documentary evidence that supported Mr Bob Cooper’s case. At an adjourned oral hearing on 7 April 2009 two Lords Justices granted permission to appeal.

The essence of Fanmail’s case was and is that DPL, like the business model of Scratch X previously used by Fanmail, was an operating company through which it would develop a new Fanmail concept. The judge accepted evidence that DPL was formed at Fanmail’s expense to develop the Dialtime idea. That idea was a new concept using mobile phone credits in promotional campaigns. The benefit taken by the customer would be in the form of credits for mobile phone bills. The credits could be immediately redeemed by the customer sending an SMS code by phone to Fanmail or to the mobile phone company.

Mr Bob Cooper’s evidence that he came up with the Dialtime idea in June 2001 was supported at the trial by the evidence of Mr David Cooper and Mr Zghari, disputed by Mr Burtenshaw and disbelieved by the judge.

The main grounds of appeal are that the judge incorrectly identified the Dialtime idea; that he failed to identify Mr Bob Cooper as the inventor of it; and that, in general, he did not in his judgment refer to relevant documents and memoranda, or address evidence supporting his case that the parties did not intend Fanmail to be the beneficial owner of the DPL shares.

It is contended by Mr David Chivers QC, appearing for Mr Bob Cooper, that the judge ought to have found that the Dialtime idea was a data processing idea, which was proposed by Mr Bob Cooper and was in due course the subject of a patent application as his invention. Only he, it is said, had the relevant experience for a data processing idea and was able to provide the details for the drafting of the patent application.

The DPL shares are now thought to be very valuable and worth litigating about on this scale. For Mr Bob Cooper, however, there is something more priceless at stake than the shares - his business reputation. He aims to clear his name of the judge’s finding that in two respects he behaved dishonestly.

It is rightly said that proof of his dishonesty was not a necessary ingredient of Fanmail’s proprietary claim. It was agreed that the proper legal approach to Fanmail’s assertion of beneficial ownership was simply to ascertain the objective collective intention regarding ownership of the disputed DPL shares. However, although dishonesty by Mr Bob Cooper did not have to be established for Fanmail to succeed, Sales J had to make findings about the credibility and honesty of the witnesses. They gave conflicting evidence about the words and conduct of the parties over the relevant period. In deciding the preliminary issue in Fanmail’s favour the judge disbelieved Mr Bob Cooper’s evidence on two matters. The first was his claim to have come up with the Dialtime idea in June 2001. The judge concluded (paragraph 127) that he “deliberately sought to mislead the court in his evidence claiming inventorship of the Dialtime idea.” He was party, with Mr David Cooper and Mr Zghari, to a scheme in the autumn of 2001 to promote himself as the inventor and to secure that the patent applied for by Fanmail would be placed in the hands of DPL. The second matter was Mr Bob Cooper’s knowledge of his son’s actions in December 2001 in procuring the fabrication of documents. In the faked documents Mr Bob Cooper was named as inventor. Fanmail, which had been named as the applicant in the initial patent application, was replaced with the name of Mr Bob Cooper and that of DPL. A Patent Office fax, which acknowledged receipt of the original patent application from Fanmail, was also tampered with to make it fit with the faked application. On the appeal Mr Bob Cooper challenged the judge’s findings that he was dishonest on these two matters.

The precise terms of the declaration appealed are in the order entered on 21 January 2009. It was declared that Mr Bob Cooper, Mr Paul Burtenshaw and Ms Yvonne Wayne hold the issued share capital of DPL on trust for Fanmail. Mr Bob Cooper and Ms Wayne were ordered to transfer the shares registered in their respective names in the name of Fanmail, or as it shall direct.

An order against Mr Burtenshaw was unnecessary, as he supported Fanmail’s claim to beneficial ownership of all the shares. Indeed, Mr Burtenshaw has gone further. He is himself bringing a derivative claim on behalf of DPL against the Coopers and Mr Zghari. It is alleged that, in breach of fiduciary duty and for their own benefit, they subsequently diverted potentially profitable corporate business opportunities and intellectual property rights from DPL to another company formed by them in July 2002 - MCashback Limited. One of the issues in the derivative claim concerns the validity of an assignment of intellectual property rights made by DPL to MCashback in September 2002 pursuant to a resolution passed by the DPL board in the absence of Mr Burtenshaw.

The derivative claim was stayed pending the determination of the preliminary issue. If that issue is resolved in favour of Fanmail, the need for the derivative claim will go. Fanmail will be the sole shareholder in DPL and could itself procure DPL to bring its own proceedings directly against the individual defendants for alleged breaches of duty.

Finally, the judge’s costs order is an additional issue in the appeal. Mr Bob Cooper was ordered to pay Fanmail’s costs on an indemnity basis for the period after the commencement of the trial of the preliminary issue. Costs incurred prior to that date were to be assessed on the standard basis and paid by him to Fanmail. The adverse findings about Mr Cooper’s dishonest evidence were factors influencing the judge’s discretion on costs.

Mr David Chivers QC, who appears for Mr Bob Cooper, has to reckon with the realistic reticence of an appellate court about interfering with findings of credibility and primary fact by the trial judge. That is especially the case when the findings of primary fact, to an appreciable extent, result from the judge’s assessment of the reliability of the witnesses he has seen and heard in the witness box. So Mr Chivers bases his main submissions on documentary materials which he says are inconsistent with Fanmail’s claim to beneficial ownership. His main criticism of the judgment is that it did not properly address significant aspects of the documentary evidence (and other evidence) relied on by Mr Bob Cooper at trial to counter Fanmail’s claim to the DPL shares.

Mr Hugh Tomlinson QC, who appears for Fanmail, reminds the court of the fundamental common sense principles of appellate judging. In my judgment, when invited to review the facts of the case on the ground that they are wrong, appellate courts should observe proper respect for (a) the integrity, diligence and skills of the fact finder who heard the evidence; (b) the significance of context in the evaluation of detailed evidence; and (c) the imperative of arriving at an understanding of all the evidence viewed as a whole, not just bits and pieces of it selected from the trial bundle and the transcripts of evidence by a party to suit the case of that party. Shortcomings in a judgment, either in what it says, and in what it does not say, about the evidence, or in its analysis of the evidence, or in the adequacy of reasons given for findings, do not necessarily make the trial judge’s factual findings wrong.

Mr Tomlinson cited wise warnings in the cases against appellate courts subverting the fact-finding functions of the first instance court in various ways, such as by a narrow and hyper-critical textual analysis of the judgment, or by setting aside findings because the judge has not supplied in his judgment sufficiently detailed reasoning for his assessment of every item of evidence. Eckersley v. Binnie (1988) 18 Con LR 1 at 77-78; Biogen Inc v. Medeva plc [1997] RPC 1;Piglowska v. Piglowska [1999] 1 WLR 1360 at 1372F-H; and Datec Electronic Holdings Ltd v. UPS Limited [2007] 1WLR 1325 at paragraphs 46 ff are cited for recent statements of the cautious approach of appellate courts to upsetting facts found by the trial judge.

Appeals on fact can succeed if the Court of Appeal is convinced that the trial judge has clearly failed to discharge his functions properly, so that his judgment does not command the respect which it would normally be expected to enjoy: for example, that the trial judge has misunderstood relevant evidence, or has not interpreted it fairly, or has rejected, without good reason, evidence which plainly points away from his findings. Then this court may exercise its review powers under CPR Part 52. It will usually do so by ordering a new trial before another judge. An appeal court is not equipped to conduct a re-trial itself.

Repetition of the rich detail of the judgment by Sales J [2008] EWHC 3131(Ch) is unnecessary. All that is required is a summary of the issues and facts in enough detail to understand the basis of the judge’s findings and the reasons for his decision and to explain Mr Bob Cooper’s grounds for his appeal against them.

First, the origins of the Dialtime idea. In about mid-2001 Mr Zghari came up with a new idea, which he called “Airtime.” The gist of it was to allow manufacturers to offer mobile phone credits to customers as an inducement to buy their products. That would involve finding a way in which credits for mobile phones could be redeemed at the point of sale in retail outlets.

Mr Bob Cooper claimed that on 20 June 2001 he, his son and Mr Zghari made a presentation of a Fanmail idea for an email barcode coupon to Unilever at Unilever’s offices. He said that, in their discussions over coffee in a café in Kingston after the Unilever meeting, he came up with an idea for a promotional activity that got away from the marketing campaigns based on emails. The idea was for mobile phone usage to interact with customers about offers in stores and to use the potential for mobile phone time as a reward for purchases. According to Mr Bob Cooper, he was the inventor of the concept which, from about the end of August 2001, was called the Dialtime idea.

The Dialtime idea identified by the judge did not depend on the use of a database of customers or on emails sent to customers. The judge described the essence of it as

“ 54. ....mobile phone credits as the form of financial benefit to be redeemed by a consumer reacting to a marketing campaign, in place of using paper coupons to claim price discounts, in respect of payment made at the till.”

The judge analysed in detail the evidence that Mr Bob Cooper was himself the inventor of the Dialtime idea. The judge gave six principal reasons (see paragraphs 56 to 65 of the judgment) for not accepting the evidence that he invented the Dialtime idea at the 20 June meeting: his claim was not borne out by the various supporting witness statements that had been served up to then; he had played little or no part in the development of technical ideas being worked on by Fanmail; he did not even refer to this important new idea in an email sent that same evening; nor was it set out in an exchange of emails involving Mr Zghari on 25 June; Fanmail’s witnesses gave evidence of their impression that Mr Zghari was principally responsible for coming up with the Dialtime idea; and there was the fact that Mr David Cooper did not name his father as inventor when he was first asked, (on subsequently giving Fanmail’s instructions for an application for a patent relating to the Dialtime idea), who was the inventor.

The judge also drew an adverse inference from Mr Bob Cooper’s awareness of his son later causing a fabricated copy of the patent application in relation to the Dialtime idea to be drawn up naming his father as the inventor and as the applicant, in place of Fanmail, for a patent. If Mr Bob Cooper invented the Dialtime idea when he, Mr David Cooper and Mr Zghari said he did, that would have been emphasised at the outset for the same tactical reasons that were behind the faking of the documents. That incident will be discussed in more detail below.

The judge referred to other contemporaneous documents indicating that the Dialtime idea was not fully developed at the time when Mr Bob Cooper claimed to have invented it. He rejected Mr Bob Cooper’s evidence that he explained his Dialtime idea at a meeting with his son at Fanmail’s offices on 22 June 2001. He held that no such meeting took place. The judge found that in their evidence the Coopers and Mr Zghari deliberately sought to exaggerate the extent to which Mr Bob Cooper was involved in the creation of the Dialtime idea.

The judge went on to find that a draft Fanmail business plan, which was produced principally by Mr Zghari on about 9 July 2001, contained the basic Dialtime idea of using mobile phone credits as a financial incentive for consumers and presented it as a product within Fanmail’s business, not something distinct from it.

As for a brief conversation between Mr Bob Cooper and Mr Burtenshaw on 15 July, the judge disbelieved Mr Bob Cooper’s account that Mr Burtenshaw wanted the new company to be kept completely separate from Fanmail and did not want his partners in Burtenshaw Associates to participate in it. Mr Burtenshaw understood, the judge said, that it was a Fanmail idea which he, as a Fanmail director, could not properly divert from it.

Mr Zghari was responsible for the preparation of drafts of a Fanmail business proposal, described as the “Unilever Business Proposal-Mobile phones.doc.” It was a development from the earlier draft business plan. It appeared from the proposal that he understood the Dialtime idea (still called “Airtime” till the end of August 2001) to be a development from thinking within Fanmail. The judge held that it was a Fanmail idea. By early August Mr Zghari, with some help from Mr David Cooper, produced a final draft of the Fanmail business proposal to be sent to Unilever. A copy was sent to Mr Bob Cooper for his reaction to it. The draft highlighted the development of “consumer self-redemption using mobile phones with manual entry of unique codes printed on till receipts against items purchased to credit offers to a mobile phone account”, which was presented as a business investment proposal for Fanmail. Copies of the investment proposal were sent to Unilever and to Ms Townley.

On 14 August 2001 Mr Zghari called a patent agent, Mr David Stanley. He gave him instructions to prepare a patent application for the Airtime/Dialtime idea. Mr Stanley recorded Fanmail as the client. On the same day Mr Zghari sent an email to Mr Stanley, which he copied to Mr David Cooper, saying

“We will be setting up a new co. called Air Time Limited in the next week to trade through. However, I would hope to retain the patents if possible through [Fanmail] …”

Mr Stanley confirmed that it would be possible to file the patent application in the name of Fanmail and license use to the new trading company. The judge also referred to a letter of 20 August 2001 sent by Mr David Cooper on behalf of Fanmail to a director of Sainsbury’s presenting the Dialtime idea to a potential investor as a Fanmail idea.

On 28 August 2001 an important meeting took place. Mr Burtenshaw, Mr Zghari and Mr Bob Cooper were present. They discussed the progress of various business ideas being promoted by Fanmail; the creation of a new operating company as the vehicle to promote the Dialtime idea on the model adopted in the case of Scratch X; and how the shares in the proposed new company should be allocated. The judge found that it was agreed that the shareholdings in the new company would mirror the shareholdings in Fanmail, subject to such equity adjustments as were needed to incentivise strategic partners, potential investors, or key individuals, in particular Mr Zghari and Mr Bob Cooper. It was agreed that Mr Zghari would be chairman of the new company. Mr Bob Cooper would be managing director. Percentages of the shareholdings were discussed in detail, but they were provisional only. The evidence from both sides was that they were not finally agreed at the meeting. The judge also found that no agreement was reached that the new company would hold the patent for the Dialtime idea and that it was not intended that the new company should be completely distinct from Fanmail.

31 August 2001 was the first time that the new name “Dialtime” was used in a document. Mr Stanley’s searches had revealed that there was a domain name and a patent which used the name “Airtime.” In an email exchange Mr David Cooper supplied Mr Stanley with flow charts in a document entitled “Dialtime patent application”. The flow charts were in the form of power-point slides. They were used by Mr Stanley to prepare the patent application. The diagrams were faxed on Fanmail headed paper on the same day to Mr Bob Cooper for review.

The judge rejected the evidence of Mr Bob Cooper that the application was intended to be made on behalf of the new company, which had not even been formed at that stage, rather than on behalf of Fanmail. The documents and the discussion on 28 August 2001 indicated that the Dialtime idea was intended and understood to be a business idea of Fanmail. The original instructions that the patent was to be registered in Fanmail’s name were not changed.

Steps were then taken to set up the new company. On 10 September 2001 Mr David Cooper sent a fax on Fanmail headed paper from its address (24C Wheeler Street, London E1) to Mr Roger Cavell at the offices of TJ Darby Accountants. Mr Cavell, who was associated with that firm, was covering for Mr Darby, the company secretary of Fanmail, while he was away on holiday. The fax was headed “Re: Registration of new company” which was to be a trading company.

In my view, this is one of the most revealing documents in the whole case. Mr David Cooper supplied Mr Cavell with the details “you need to register a new company for us.” The details included the name of DPL; the names of the two directors, Mr Bob Cooper and Mr Paul Burtenshaw; and the nature of the business - “Promotions involving mobile phones Database activities.” The letter concluded “Can you confirm the cost to us of registering the company.” The judge commented (paragraph 110) that by that fax Mr David Cooper was giving instructions for a new trading company to be established for Fanmail, the cost to be borne by Fanmail.

On 11 September 2001 Mr David Cooper caused Ms Ferneyhough to register the domain name “www. Dialtimeplus.com” on behalf of Fanmail. On 14 September 2001 a Patents Form 1/77 (Request for grant of a patent) was discussed by Mr Stanley with Mr David Cooper. As instructed by Mr David Cooper, the application for the invention “Data processing systems” was in the name of Fanmail. Among the claims was one for a system for a mobile phone account and credit for mobile telephone time. The details of the inventor name, which Mr David Cooper had been requested to supply, were not supplied at that time. They were to be given early the next week. The judge commented (paragraph 115) that

“The omission by Mr David Cooper to identify Mr Bob Cooper as the inventor of the Dialtime idea to Mr Stanley stands in contrast with his evidence and that of Mr Bob Cooper and Mr Zghari that Mr Bob Cooper had invented the Dialtime idea in all essentials at their meeting after the presentation to Unilever on 20 June 2001.”

On the same day Mr Stanley lodged the patent application with the Patent Office on behalf of Fanmail. He sent to Mr David Cooper copies of it and of the Patent Office acknowledgement fax, which Mr David Cooper later caused to be falsified in order to indicate that the application had been made on behalf of Mr Bob Cooper and DPL instead of by Fanmail.

DPL was incorporated on about 17 September 2001. The shares were issued and allotted to the four individuals as mentioned above. Mr Roger Cavell’s file note of 18 September on “Company Formation” confirmed that the initial shareholdings in DPL were 1 share each for Mr Burtenshaw, Mr Bob Cooper and Mr Zghari. None of them paid for the shares or contributed to the costs of the incorporation of DPL. In due course, on 3 December 2001, Fanmail paid a cheque for £293.75 in favour of Mr TJ Darby, as per his invoice of 14 November 2001 for that sum inclusive of VAT, for “Professional charges rendered in connection with the formation of the company.” The invoice had been sent to Fanmail’s address at 24C Wheeler Street, though it was in fact addressed to the “Directors of DPL.” The file note of 18 September 2001 had referred to “Set up/formation costs to be billed” and asked the question “-has the company opened a bank account/ source of working capital?” DPL had no bank account and no assets.

The judge then reviewed in detail discussions at meetings and events following the formation of DPL and the allocation of the four shares, as evidenced in memoranda, emails and letters. There were continuing negotiations about the ultimate allocation of the shareholdings in DPL. The judge found that the evidence indicated a close relationship between the shareholdings in Fanmail and DPL and that Fanmail, Scratch X and DPL were to be regarded as part of one overall association of companies with broadly common ownership. The existing shareholders in Fanmail were to be regarded as the shareholders in DPL. The judge found that it was Mr Burtenshaw’s understanding that the DPL shareholding was intended to reflect the shareholding in Fanmail, subject to equity adjustments to take account of others who needed to be incentivised and acceptance of his role in representing the group of minority shareholders in Fanmail in respect of the interests which they had in DPL.

The judge found that in October 2001 Mr Zghari, Mr David Cooper and Mr Bob Cooper adopted a scheme to promote Mr Bob Cooper as the inventor of the Dialtime idea and to change from Fanmail the registration of the owner of the patent without informing Mr Burtenshaw. During that period the Dialtime idea was still being presented by Mr Zghari to investors as something which had grown out of a range of ideas developed by Fanmail. It also appears from the documents that there were concerns about Fanmail’s deteriorating financial position and lack of significant income.

On about 12 December 2001 Mr David Cooper instructed Ms Ferneyhough to produce a set of fake documents. The judge held that the production of those documents was part of a deliberate attempt to mislead investors into believing that DPL was the proper holder of the patent, and to strengthen the bargaining position of Mr Zghari and Mr Bob Cooper in their negotiations with Mr Burtenshaw about the ultimate allocation of shares in DPL.

The faking involved altering copies of the Fanmail patent application and the Patent Office fax. The name of Fanmail as applicant was replaced by the names of Mr Bob Cooper and DPL. Mr David Cooper provided the fake documents to Mr Zghari, who sent them out to investors. The judge found that Mr David Cooper obtained Mr Zghari’s agreement to produce the fake documents. The judge also found that it was likely that Mr Bob Cooper knew about the decision to produce the fake documents at the time. He commented-

“143….I do not find it credible that Mr David Cooper would have taken such a serious step as creating fake documents naming his father to be sent to investors without checking with him first.”

At about the same time Mr David Cooper, with the knowledge of Mr Zghari and Mr Bob Cooper and in furtherance of their scheme, contacted Mr Stanley to instruct him to arrange for the assignment of the patent application from Fanmail to DPL with the inventor being recognised as Mr Bob Cooper. The judge accepted the evidence of Mr Burtenshaw that he had not agreed to this.

In due course Mr Stanley provided Mr David Cooper with a draft assignment from Fanmail to DPL dated 11 January 2002 and a draft assignment from Mr Bob Cooper to Fanmail backdated to 7 September 2001 i.e pre-dating Fanmail’s application for the patent. The signed executed documents were returned to Mr Stanley on 23 January 2002.

Continuing negotiations in the early months of 2002 to resolve the question of shareholding in DPL did not produce any agreement. By about the end of March 2002 relations between the parties had broken down. Mr Zghari and the Coopers marketed the Dialtime idea through DPL. Fanmail’s financial position was parlous. It later became insolvent and was in due course struck off the register for failure to file accounts. It had to be restored to the register and raise funds in order to finance these proceedings.

Mr Bob Cooper was paying DPL’s business expenses out of his own pocket. Mr Burtenshaw had no effective control over what the Coopers and Mr Zghari were doing. Mr Zghari resigned as a director of Scratch X on 20 March 2002 and at the end of April he resigned from Burtenshaw Associates. In September 2002 the board of DPL decided, in the absence of Mr Burtenshaw, to transfer DPL’s IP rights to MCashback Limited, a company formed in July 2002 by the Coopers and Mr Zghari. Mr Burtenshaw’s solicitors wrote to them on 18 September 2002 protesting. The letter put them on notice that

“….it is our client’s position that the issued shares in [DPL] are held on trust for the benefit of the shareholders of Fanmail.”

Commenting on the submission, which was repeated on this appeal, that the solicitors’ letter indicated that Mr Burtenshaw’s true understanding was that the Fanmail shareholders, not Fanmail itself, owned DPL, the judge described the letter as “rather loosely drafted.” He said that it did not bear the weight sought to be placed on it by Mr Bob Cooper’s counsel.

The Dialtime idea identified

There was a lot of discussion at the trial and on the appeal about the Dialtime idea itself. The preliminary issue was not specifically directed to identifying or deciding who invented it, or who owned the intellectual property rights, either in the idea itself or in the subsequent application for a patent. Nevertheless, the relevant intellectual property had to be identified in order to ascertain the inventor of it. That was material to the determination of the beneficial ownership of the shares in DPL. Mr Chivers QC says that the judge did not properly identify the idea and its inventor: he disregarded evidence and did not address important aspects of Mr Bob Cooper’s case relating to the Dialtime idea.

Though nothing has been conceded at the hearing, this particular point is notably more conspicuous in the skeleton argument supporting the application for permission to appeal than in the oral submissions made by Mr Chivers QC at the hearing. The emphasis at the hearing has been less on the Judge’s failure to identify the Dialtime idea properly and more on documents indicating that the shares in DPL issued to individuals were not to be held by those individuals beneficially for Fanmail. The judge is criticised for his failure to deal adequately with those documents or not even dealing with some of them at all.

As for the Dialtime idea the judge is criticised for mis-characterising it as the “mobile phone credit system” and for not having paid any regard to the terms of the patent application, in particular claim 1 and the actual invention described in it. It is said that that is what Mr Bob Cooper claimed to have invented - a novel method of “data processing systems for checkouts.” The use of that concept rather than the involvement of mobile phones and free credits was the true Dialtime idea. Instead of identifying the patent application concept as the Dialtime idea, the judge concentrated on finding similarities with the earlier email ideas that were already in circulation in Fanmail, the manner in which the new idea was to be exploited in relation to mobile phone credits and the draft business plans for Dialtime in the summer of 2001. In consequence the judge did not properly consider the uniquely relevant qualifications, skills and experience in retailing of Mr Bob Cooper as the alleged inventor of the data processing idea for which he supplied the detail when Mr David Stanley drafted the patent application. Had he considered those matters the judge would not have rejected as dishonest Bob Cooper’s claim to be the inventor. The judge’s conclusion that he was not the inventor was wrong. It was critical to his determination of the preliminary issue. This error of approach coloured his conclusions that there was a dishonest scheme to depict Mr Bob Cooper as the inventor of the relevant Dialtime idea. It coloured both the judge’s uncritical acceptance of the evidence given by Mr Burtenshaw and his criticisms of Mr Bob Cooper’s honesty.

I am unimpressed by these attacks on the judgment under appeal. The judge clearly appreciated that, in the context of ascertaining the objective collective intention relating to beneficial ownership of the DPL shares, the question who invented the Dialtime idea was a relevant factor. He dealt with the origins of the Dialtime idea very fully in his review of the conflicting evidence (see paragraphs 195 and 211 ff of his judgment). He accurately summarised Mr Bob Cooper’s written and oral evidence about his claim to have come up with the Dialtime mobile phone credits idea in mid-2001, that is well before DPL was set up and well before instructions were given to Mr David Stanley for the drafting and submission of a patent application in Fanmail’s name. The judge went on to give detailed reasons for rejecting Mr Bob Cooper’s evidence, even though it was supported by his son and by Mr Zghari, and for finding that Mr Zghari was the inventor of the Dialtime idea.

It now seems to be suggested by Mr Chivers QC that there may have been two Dialtime ideas, the relevant one being the “data processing systems for checkouts” idea specified in claim 1 of the patent application as an inventive and patentable manner of exploiting a second more general “mobile phone free credits” idea which was originated in mid-2001 either, as the judge found, by Mr Zghari, or, as the Coopers and Mr Zghari testified at trial, by Mr Bob Cooper. The judge rightly regarded the second as the Dialtime idea: that is what was being presented by Fanmail employees to investors, claimed by Mr Bob Cooper as his since mid-2001 in his pleadings and in his evidence, and subsequently assigned by DPL on 6 September 2002, thereby giving rise to the derivative claim. The patent applied for, which has never in fact been granted, was not itself referred to, or regarded as, the Dialtime idea, either at the time or in the evidence at trial.

In my judgment, Sales J correctly identified the mobile phone free credit application as the Dialtime idea that mattered for the purpose of determining the beneficial share ownership question. He appreciated the relevance of the genesis of that Dialtime idea to the dispute whether DPL was set up by Fanmail as an operating structure to exploit its idea, or whether it was formed to be an entity totally distinct from Fanmail. The steps taken later to patent a patentable concept did not have the same materiality to the share ownership issue as the idea Mr Bob Cooper claimed to have come up with in discussions in mid-2001 and what was being presented to potential investors by Mr Zghari and Mr David Cooper.

Collective common intention.

It was common ground that the law requires an objective approach to be taken in ascertaining from all the surrounding circumstances the intentions of the parties about the beneficial ownership of the DPL shares. Mr Chivers QC disputes the judge’s finding on the beneficial ownership of the shares by Fanmail as having been made without reference to contrary evidence.

It is submitted that there was contrary evidence in relation to the judge’s findings that it was agreed at the meeting of the parties on 28 August 2001 that the shareholdings in the new company would mirror or directly reflect the shareholdings in Fanmail, subject to equity adjustments for incentives. It is submitted that the judge’s finding ignored the fact that the three Fanmail shareholders at that meeting proceeded on the basis that Ms Townley, who was a shareholder in Fanmail, would not be a shareholder in DPL nor would Mrs Linda Cooper, the wife of Mr Bob Cooper. Even as between those present, who were intended to be shareholders in both Fanmail and DPL, their relative interests would be different. For example, Mr Burtenshaw was to have a smaller percentage of shares in DPL than in Fanmail, and Mr Bob Cooper and Mr Zghari were to have a bigger percentage than they had in Fanmail. Thus, on the judge’s findings the shareholding composition of DPL would be different from the shareholdings in Fanmail. The judge had thus reached a wrong conclusion on the point of correlation between the share allocations in Fanmail and DPL. He had then used that false point to support Fanmail’s claim to the shares.

I do not agree with these criticisms. As for the specific points on the differences between the shareholdings in Fanmail and those intended for DPL, the judge did consider the differences, including the position of Mrs Townley, who had no involvement in the Dialtime idea. He did not ignore the position of Mrs Cooper, whose share entitlement was considered with that of her husband Mr Bob Cooper.

On a broader front the discussion on 28 August 2001 was not a “stand alone” event of a concluded agreement on the beneficial interest in DPL shares. The shareholdings in Fanmail were the starting point for the discussions about the shares to be issued in DPL. The judge held that the agreement reached at the meeting on 28 August was provisional (see paragraph 97) and rightly had regard to its context in the discussions between the participants. There was no intention to treat DPL as a company and a business completely divorced from Fanmail. The discussions about the arrangements for the allocation of the shares in DPL were on-going. The judge found that the parties gave little consideration at the 28 August meeting to the way in which the initial shares in DPL should be held. When the shares were issued on 17/18 September 2001 the parties expected that a final agreement about the distribution of new shares would be arrived at shortly along the lines discussed on 28 August. The allocation of the shares at that time was regarded on all sides as a temporary holding measure pending the expected agreement, which never in fact materialised. There was no evidence that it was agreed that the shares issued should be owned beneficially by those to whom they were issued pending agreement about the ultimate allocation of shares. In those circumstances it became necessary for the court to ascertain by inference from all the surrounding circumstances the objective intentions of the parties on the beneficial ownership of the shares initially allocated.

The judge’s findings on the discussions on 28 August 2001 were not inconsistent with his overall conclusion that the common intention was that the shares in DPL registered in the names of individuals should be held in such a way as to allow DPL to be treated as part of the Fanmail association of companies and in such a way as to allow the Dialtime idea which DPL was to develop and exploit to be presented to investors as a Fanmail business opportunity.

On the evidence of the surrounding circumstances the judge was entitled to reach that conclusion that he did on collective common intention. The evidence showed that DPL was established by Fanmail as a company to trade through; that the Dialtime idea was derived from ongoing work by Mr Zghari for Fanmail in respect of the marketing ideas it was developing; that the Dialtime idea was not treated as an item distinct from the rest of the business ideas and concepts belonging to Fanmail; that the patent application was taken in the name of Fanmail, not Dialtime; and that it would have been a breach of fiduciary duty for Fanmail directors to set up a company, in which they had a beneficial interest, in order to exploit Fanmail ideas, business opportunities and intellectual property.

Against those established and, I think, eloquent facts Mr Chivers QC presents the court with a list of pickings that come nowhere close to the point of overthrowing a judge’s findings as erroneous in fact. For example, the judge’s conclusion is criticised on the ground that he failed to have regard to or deal with contemporaneous evidence contrary to his conclusion, in particular a memorandum of 21 September 2001, Mr Darby’s notes of 28 September 2001, and the meeting of 18 December 2001, which were only referred to in passing, and to other documents which were not referred to at all. Into the latter description fell a letter from Mr Darby dated 2 October 2001 and the notes of a telephone conversation Mr Burtenshaw had on 12 February 2002, and a letter from Mr Burtenshaw dated 13 March 2002. The court has been taken to the documents in question. I am satisfied that the fact that they were not mentioned or, where they were mentioned, were not regarded as sufficiently important to deal with in detail provides no basis at all for holding that the judge made wrong findings of fact on the issue of common intention regarding the beneficial ownership of the DPL shares.

It is also submitted that the judge did not deal adequately with significant elements of the defendants’ case, in particular his assessment of the letter from Mr Burtenshaw’s solicitors (Walker Morris) dated 18 September 2002. Mr Chivers QC says that it contained a clear contemporaneous record of Mr Burtenshaw’s intentions, as it was contended in it that the DPL shares were held on trust for the benefit of the shareholders in Fanmail pointing away from his conclusion that the shares were held on trust for Fanmail. That was not, as the judge described it, just a matter of “loose drafting.”

That is, in my view, a misplaced criticism. The judge dealt with the solicitors’ letter and was entitled to regard it as an incorrect legal analysis of the distinction between the interests of Fanmail and those of its shareholders, rather than as solid evidence of Mr Burtenshaw’s contemporaneous intentions regarding the beneficial ownership of the shares in DPL

Mr Chivers QC scrapes the bottom of the barrel when he says that the judge erred in failing to have regard to Mr Burtenshaw’s witness statement in support of the application to restore Fanmail to the register, so that it could bring these legal proceedings. Mr Chivers points to the fact that the statement contained no suggestion of a claim by Fanmail to shares in DPL. I agree that the statement is not expressly dealt with in the judgment, but the judge was not in error in paying little or no attention to a document made 5 years after the relevant events as objective evidence of relevant intentions of a party as at the date of the issue of the DPL shares in September 2001. The same goes for other criticisms of the judge for paying little or no regard to subsequent statements of Mr Burtenshaw, which were inconsistent with Fanmail’s case, and were admissible evidence adverse to the position taken by him.

Finally, sweeping up his overall case on common intention into a rather more substantial point, Mr Chivers QC stresses the importance of the default position in his case. He says that, had the judge properly considered all the relevant evidence, the only sensible conclusion was that the allocation of shares in DPL was being negotiated from scratch and that the clear intention of the parties at the meeting on 28 August was that DPL would be a separate company owned not by Fanmail, but by some, though not all, of the shareholders in Fanmail and in different proportions. That intention was inconsistent with Fanmail’s case that the intention was that the DPL would belong to Fanmail and that DPL would be would be a Fanmail subsidiary. The evidence was of an actual intention that the shares in DPL were to be allotted to the individuals in the list discussed at the meeting on 28 August 2001 as a reflection of the shareholdings in Fanmail. If no final agreement could be reached between the parties on an alternative allocation of shares in DPL, the legal status of the beneficial ownership of the four issued shares was governed by the default position, not by a trust in favour of Fanmail. On the preliminary issue the judge only had to decide whether the shares were held upon trust for Fanmail and no such trust was established.

That possible theory of Mr Bob Cooper’s case, is not, in my judgment, supported by the findings of fact made by the judge. He was entitled to reject it on the basis of his findings, as summarised above, and on the basis of the inferences that could be reasonably drawn from those facts about the common intentions of the parties to the transaction. A resulting trust, under which those issued with the DPL shares, pending an agreement which never materialised, held them for the benefit of Fanmail, would give effect to those findings and inferences.

Incorporation of DPL and resulting trust

Under this head the judge is criticised for holding that, on the formation of DPL on the instructions given by Mr David Cooper on Fanmail headed notepaper and at the expense of Fanmail, a rebuttable presumption arose that the shares in DPL would be held on a resulting trust for Fanmail. Mr Chivers QC refers in particular to uncontradicted evidence from Mr Terence Darby, which was disregarded by the judge, that his client was Mr Burtenshaw, not Fanmail, and the fact that DPL, not Fanmail, was subsequently billed by Mr Darby for the costs of the formation of DPL. He says that the payment of DPL’s debt by Fanmail’s cheque on 3 December 2001 did not give rise to any proprietary claim to the property (the shares) in respect of which that debt arose.

There is a short answer to this point. In deciding the beneficial ownership of the shares, the judge was entitled to take into account all the circumstances surrounding the formation of DPL and to conclude that they pointed to a resulting trust for Fanmail. The important evidence related to the intentions of the parties, as gathered from their words and deeds, such as those of Mr David Cooper as an employee of Fanmail in relation to the setting up of DPL on Fanmail’s behalf and the making of the patent application in the name of Fanmail, rather than on the words and deeds of their advisers, like Mr Darby, who received and acted on the instructions of the parties. The evidence of Mr Darby on which Mr Chivers QC relies relates to a time when Mr Burtenshaw’s contact with Mr Darby was in his capacity as a director of Fanmail, not in his personal capacity. In my judgment, the judge was not wrong to hold that there was a resulting trust of the DPL shares and that that was not rebutted by the evidence of Mr Darby, any more than it was rebutted by the evidence of Mr Bob Cooper, Mr David Cooper and Mr Zghari

Reliance on Scratch X model as a business model

Particular criticisms are made of the judge’s reliance on Scratch X as the corporate business model used by Fanmail for the development and exploitation of its new concepts and ideas and the supposed use in the case of DPL and the Dialtime idea. Mr Chivers QC says that that there was no evidence that Mr Bob Cooper was party to the Scratch X business model. Further, the intended structure of DPL was wholly different from that of Scratch X. It was never intended that Fanmail would be a shareholder in DPL, whereas the only other shareholders in Scratch X were to be outside persons. Nor was there any evidence that Scratch X was actually a subsidiary of Fanmail, shares having been allotted to Mr Burtenshaw and Mr Zghari, not to Fanmail.

Mr Chivers QC submits that ultimately Fanmail’s case was not about the ownership of DPL’s business based on the use of Fanmail’s resources. It was about ownership of the shares in it. Whether there was one business, or two separate businesses, or two related businesses was not relevant to the issue of share ownership of DPL.

In my judgment, the criticisms provide no support for the case that the judge’s finding that Fanmail was entitled to the DPL shares beneficially was wrong. The evidence, including evidence from Mr Bob Cooper himself, showed that, although he was not involved in Scratch X, he was aware that Fanmail’s Scratch X concept was to be exploited through a separate company funded by Fanmail and of which Mr Burtenshaw and Mr Zghari were directors and shareholders. Whether or not Scratch X was in company law terms a subsidiary of Fanmail, it was referred to in documents by Mr Burtenshaw and Mr Zghari as a subsidiary of Fanmail and was treated by them as such in holding their shares for the benefit of Fanmail. The judge was entitled to rely on Fanmail’s use of the Scratch X model as supporting Fanmail’s case on the beneficial ownership of the shares in DPL.

Findings of dishonesty by Mr Bob Cooper

There is a vigorous onslaught on the judge’s findings of dishonesty on the part of Mr Bob Cooper: first, in joining with Mr David Cooper and Mr Zghari in deliberately and untruthfully claiming that he was the inventor of the Dialtime idea and, secondly, in relation to his knowledge of the decision of Mr David Cooper to cause documents to be faked to further a scheme to promote Mr Bob Cooper as the inventor of the Dialtime idea.

Mr Chivers QC says that a finding of dishonesty is a very serious matter. No-one disputes that, or that before making such a finding the judge had to balance the gravity of that finding against the strength of the inferences from the evidence on which he relied. The judge did that. The contention that there was no indication that the judge had conducted such an exercise is not made out. The obvious care that the judge took over the details of the case is probably the best indication that he considered very carefully his conclusions about Mr Bob Cooper’s honesty.

On a number of disputed issues of fact the judge was entitled to reject evidence given by Mr Bob Cooper and to find that he was an unreliable witness. On one of the most important issues ( i.e. who was the inventor of the Dialtime idea) the matter went further than giving unreliable evidence in the witness box. There was material entitling the judge to conclude that Mr Bob Cooper “deliberately sought to mislead the court in his evidence claiming inventorship of the Dialtime idea” and that he was party to a scheme involving Mr David Cooper and Mr Zghari “to promote the idea that [he] was the inventor of the Dialtime idea.”

That was confirmed and compounded by the related finding that Mr Bob Cooper “knew about the decision to produce the fake [patent application] at that time.” The purpose of altering the documents was to produce documentary consistency with the false case that he was the inventor of the Dialtime idea, and so support the case of beneficial ownership of his shares in DPL.

There are no grounds for interfering with the judge’s findings about Mr Bob Cooper on the ground that they are wrong. They are findings of fact made without any misdirection as to law or approach and after hearing Mr Bob Cooper and the other witnesses give their evidence. The findings were made after very careful and detailed consideration of the documentary and oral evidence.

Costs order

As the appeal totally fails, including the challenge to the findings of dishonesty by Mr Bob Cooper, it is impossible to challenge the judge’s costs order. In the exercise of his discretion the judge was entitled to take into account Mr Bob Cooper’s conduct in the dispute, including his conduct in the litigation.

I would dismiss the appeal. It has not been shown that the declaration made by the judge was wrong, or that the findings of fact on which he based it were wrong. In a fully reasoned, detailed and careful judgment he made findings of fact which he was entitled to make on the basis of the available documentary and oral evidence. The fact that he did not in his judgment consider it necessary to refer to and discuss each and every item of evidence on which Mr Bob Cooper relied does not undermine the validity of either his overall conclusion or his particular findings of fact.

On 7 April 2009, sitting with Jacob LJ, I was persuaded by Mr Chivers' written and oral arguments, despite submissions to the contrary on the part of Mr Parker Q.C. for the respondent, that the appellants had enough of a prospect of success to justify granting permission to appeal, even though, as in the case of any appeal on fact, they faced an uphill task.  Now that I have been able to consider the matter more fully with the benefit of argument over two days on the appeal, I agree with Mummery LJ that the appellants have not shown that Sales J was wrong in his findings, or that he dealt inadequately with the issues in the case.  I agree with Mummery LJ, for the reasons given by him, that the appeal should be dismissed.

I have read the judgment of Mummery LJ.  I agree that the appeal should be dismissed for the reasons he gives.