Fraser & Ors v Oystertec Plc & Ors

INTRODUCTION.

This is an application for summary judgement by three of the Claimants, who are the minority shareholders in the defendant Easyrad Limited. Ostensibly, it is a case about a patent. But I believe it raises a question of law which is of more general significance.

Because this is an application for summary judgement I must instruct myself as to the correct standards and procedures to apply. I shall state what I conceive to be the correct position in Section II of this judgement. But first a certain amount of preliminary narrative is in order.

The Applicants for summary judgement are Mr and Mrs Fraser and Davidson Tools Limited. Mr and Mrs Fraser are investors and management consultants. They are creditors of Easyrad Limited and, together with Davidson Tools Limited, they own a number of shares in Easyrad Limited, but not a majority.

For present purposes I do not think I need to go into the history of Davidson Tools Limited, save to say that it was a company in which Mr Davidson was at one time interested; however, in September 2001 management control of it was obtained by the Frasers, together with Mr John Barker. Mr Barker has been a significant actor in this case and I shall return to his role later.

The Respondents to the application are Oystertec PLC, a company I shall describe in a moment; Mr Paul Davidson who started off as a fitter and became an inventor and entrepreneur; and Mr Adrian Binney who is an accountant and for some time was a business associate of Mr Davidson.

The Fourth Defendant Easyrad Limited is a company in whose name the proceedings are being brought by its minority shareholders: see further below.

In February 2001 the defendant Oystertec PLC was floated on the Alternative Investment Market of the London Stock Exchange. The flotation was a great success. It raised £30 million. Following the flotation the shares attracted a substantial premium, valuing the company at about £96 million in mid-August 2001. Quite a lot of money was made by some of its directors including, in particular, the defendant Adrian Binney and, more particularly still, Mr Paul Davidson.

When Oystertec was floated it was substantially indebted, it had not sold any products, and it had no contracts with customers. The prospectus began as follows:

The prospectus proceeded to describe the Oyster Converter. It is a fitting by which a pipe can be connected to a boiler, cylinder, valve or similar device. For example, it can serve to connect the valve of a domestic radiator to the pipe that feeds it with hot water. Because the joint is rotary the radiator can be swung away from the wall whilst it is still working.

I should explain that the ‘Oyster Converter’ was previously known, to the parties to this case, as the ‘BSP Converter’ or (as mentioned in paragraphs 6 and 12 of Mr Binney’s first witness statement) as ‘the Swing Down Radiator Fitting’ or ‘the Easyrad Swing Down Radiator’.

Since the directors proposed to generate revenues by granting licences to manufacturers, it is evident that the most important assets of the company were its intellectual property. The reference to the patent which was granted for the Oyster Converter in July 2000 is to UK patent No. 2314391, and I shall call it “the Patent”. It was granted on 20 July 2000 pursuant to Application No. 9711602.4, filed on 6 June 1997.

The prospectus mentioned certain other products which had been invented by Mr Davidson and for which patent applications were pending, but there can be no doubt that the Oyster Converter had pride of place in the document. Mr Leon Dwek, who was the chief executive of Oystertec at the time and had overall responsibility for the work required for the flotation, has made a witness statement on behalf of the First Defendant. He describes the position as follows:

Page 14 of the prospectus explained that:

Mr Binney, who was the Finance Director of Oystertec at the time, says:

The prospectus explained that earlier that month, on 6 February 2001, Mr Davidson had assigned all his intellectual property rights relating to Oystertec products – and that included the Patent – to the company, conditional on the shares being admitted to trading on the AIM, for a deferred consideration of £3 million. I mention in passing that Mr Davidson had obtained a large shareholding in the company on preferential terms, and it appears that soon after the flotation he sold it for £6 million; however, neither that fact nor the precise amount matters much for present purposes.

Now, the principal complaint that is made by the Applicants in this case is that at the time of the flotation neither Mr Paul Davidson nor Oystertec PLC owned the Patent at all: it belonged to the defendant Easyrad Limited, and still does. More precisely, what Easyrad Limited originally owned was the pending application for the patent, but nothing turns on the difference and so I shall simply call it “the Patent”. The Applicants seek declaratory and certain ancillary relief, accordingly.

In essence, the Applicants say that they and others invested in Easyrad Limited in order that it could acquire the Patent, which it did. Other members of that company included Mr Paul Davidson and Mr Adrian Binney. There was a falling out and it then transpired that Mr Binney, purporting to act for the company, had divested it of the Patent by assigning it to Mr Davidson himself. The Applicants say that the purported divestiture was null and void because:

I believe that this is the main group of issues in the case and I shall refer to them collectively as the ‘Void Transfer’ point. Essentially, they are points of law or construction.

Now, although the Applicants say that Oystertec is wrongly claiming to be the owner of a patent which really belongs to Easyrad, they admit that they cannot, by exercising their voting rights, compel Easyrad to bring legal proceedings about it. The majority of the shareholding in Easyrad is controlled by Mr Paul Davidson and Mr Adrian Binney and those who are their supporters, or who have come to an arrangement with them and do not wish to be troubled. Nor can the Applicants sue personally because they do not claim to be the owners of the Patent themselves.

I understand that on 29 July 2002 Pumfrey J ordered that the Applicants should be permitted to continue their claim by way of derivative action for the benefit of Easyrad Limited. A derivative action is, of course, a proceeding by which in appropriate circumstances the court allows minority shareholders to bring proceedings in the name of the company; for that purpose the company is joined as a defendant. Hence in this judgement I shall treat Easyrad Limited as, so to speak, a neutral party; when I write ‘the Defendants’ I shall be referring to Oystertec PLC, Mr Paul Davidson and Mr Adrian Binney.

The Applicants have an alternative ground. They assert that, even if the transfer was not void, it was voidable. They say that in making the transfer Mr Davidson and Mr Binney acted in breach of their fiduciary duties as directors to act in the best interests of the company; alternatively, that the transaction amounted to a sale at an undervalue. I believe that Mr Andrew Sutcliffe QC, who appeared for the Applicants, eventually accepted that he could not obtain summary judgement on that ground. In any event I so hold.

Indeed I am prepared to go further and to hold that this particular ground of complaint is bound to fail. Apart from other difficulties, ‘voidable’ means that the transaction is valid unless and until it is avoided (repudiated). A company may be the victim of a breach of fiduciary duty or a sale at an undervalue; nevertheless it may suit it, or its liquidator, to affirm the transaction. In my judgement it is plain on the face of the correspondence that the Applicants did not take sufficient steps to avoid the transaction before the flotation of Oystertec PLC. They merely asserted that they might be going to avoid it, which is not enough. Furthermore, if we assume for the moment that Easyrad Limited validly conferred upon Mr Binney and Mr Davidson a power to enter into the divestiture transaction, I cannot see of what loss the company is entitled to complain.

It follows that if the Applicants are to succeed it must be on one aspect or another of their ‘Void Transfer’ point, or not at all.

The Applicants contend that certain other patent rights which are claimed by Oystertec PLC do not belong to it either, but to one or another of the other corporate claimants in this case and, in some respects, for similar reasons. But they did not advance these particular contentions with much vigour in these summary judgement proceedings; I did not have the opportunity to hear full argument on them; and it is possible that the evidence does not really enable me to know enough about certain aspects of the relevant circumstances. In those circumstances I believe it would be wrong to say anything further about these claims at this stage. However, some of the findings in this judgement may conceivably have an impact on some aspects of those claims at a later stage.

Oystertec PLC, in case the Applicants succeed against it, have brought a Part 20 claim against Mr Paul Davidson on the ground that it was misled.

The Respondents dispute the ‘Void Transfer’ point and add that the complaint is not suitable for adjudication on an application for summary judgement.

The Respondents also contend that the Applicants’ claim is barred by laches or acquiescence: they stood by too long and allowed the Patent to be assigned by Mr Davidson to Oystertec PLC so that Oystertec could be floated on the AIM. The Respondents say that in any case the claim was settled in the year 2001 so there has been an accord and satisfaction.

THE LEGAL STANDARD.

Because this is an application for summary judgement I must direct myself as to the correct legal standard to apply. I wrote this section of my judgement first, and believe that I have already been applying its precepts in the introductory section, above.

CPR rule 24.2 provides:

A party is entitled to a fair trial. Because a summary judgement deprives a defendant of the opportunity of having a full trial, it is not available unless he has ‘no real prospect’ of succeeding. If he has no real prospect of succeeding, summary judgement deprives him of nothing of substance; and to insist on a full-blown trial would be to inflict expense inconvenience and delay on his opponent. It would be inconsistent with the overriding objective, which is to deal with cases justly. Dealing with cases justly includes saving expense, avoiding delay and acting in a manner which is proportionate.

Hence CPR Part 24 contains what Lord Woolf MR in Swain v. Hillman [2001] 1 All ER 91 at 95 described as a useful power. He went on to warn, however, that

Where Lord Woolf refers to ‘cases’ being disposed of summarily, I believe he means to include aspects of cases, because the Rule applies to the disposal of ‘the whole of a claim or a particular issue’. I shall revert to ‘a mini-trial’ a little later in this section.

In order to defeat an application for summary judgement a fanciful prospect of success is not enough. For example “it may be possible to say with confidence before trial that the factual basis for the [defence] is fanciful because it is entirely without substance. It may be clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based”: per Lord Hope of Craighead in Three Rivers District Council v. Bank of England [2001] UKHL 16 at §95.

This signifies that, whenever there is a conflict between the witness statements of the applicant and the respondent, and the respondent’s version, although seemingly weaker, is not fanciful, the latter should be preferred.

But I do not believe that a respondent can defeat an application for summary judgement, otherwise good, by putting in a witness statement that asserts a bare conclusion of law, being a conclusion that is challenged by the other side. He must go further and give his version of the facts: the facts upon which that conclusion of law is supposed to depend.

For example, suppose that, in a particular case, it would somehow be a good defence to show that there was a trust. It will not do for the respondent merely to assert “There was a trust”. He must state the facts that he relies on to show that such a trust was created. Likewise, if he contends that the proceedings have already been compromised between the parties on certain terms, it is not enough to say “The settlement was agreed”, without saying how. If he does not lay out the facts the court has no way of knowing whether they have any reasonable basis: whether they are fanciful. He cannot evade the scrutiny of the court upon this point by failing to condescend to sufficient particulars. I do not mean that he must go into exhaustive detail, but I do mean that he must do enough for the court to be in a position to adjudicate on his story, albeit to the standard required for rejection of summary judgement. If the law were otherwise all applications for summary judgement could be defeated by a deponent who did not know or mistook the law, or who chose to conceal a fanciful, incredible and colourful story within the plain brown envelope of a legal conclusion.

Further, summary judgement is usually applied for before there has been disclosure of documents. An applicant for summary judgement may, within reason, select which of his documents he puts forward for the court’s attention; but the procedure known as disclosure of documents compels him to reveal (and indeed to look for) even documents which he would hate to disclose, because they are injurious or fatal to his case. Furthermore summary judgement is almost invariably sought before there has been disclosure of the trial witness statements, let alone any cross-examination of witnesses. Every experienced practitioner has seen cases which looked solid on paper but which came unstuck at or on their way to trial – and rightly so. In the Three Rivers case, what was effectively summary judgement was sought against the claimant; but exactly the same considerations apply, in reverse, where it is sought against a defendant. Lord Hobhouse of Woodborough (dissenting, but not on this point) said at §160:

This does not mean that a party can successfully resist summary judgement by suggesting, like Mr Micawber, that something may turn up to save him, though he does not know what: see per Megarry V-C in Lady Anne Tennant v. Associated Newspapers Group Ltd [1979] FSR 298: per Jacob J in World Wide Fund for Nature v. World Wrestling Federation [2002] FSR 504, 515 (“There must be some reasonable basis… It is not enough that something might turn up out of the blue”). The court must be able to see that the prospect is real, not fanciful. For example, “the hope that something may turn up during the cross-examination of a witness at the trial does not suffice. It is of course different if the admissible material available discloses a reasonable prima facie case which the other party will have to answer at the trial” (per Lord Hobhouse in the Three Rivers case).

An application for summary judgement may raise difficult questions of law. This is not the same problem as disputed questions of fact, because the court is supposed to know the law, and if it makes a mistake it can be put right on appeal. Rather, it is a problem concerning the proper allocation of judicial resources, including the resources of the parties. As Lord Mackay of Clashfern said in Williams & Humbert v. W & H. Trade Marks [1986] AC 368 at 441:

The same principle should, I apprehend, apply to an application for summary judgement on a difficult point of law (except, of course, that the result need not be pretty evident in advance). A further difficulty is that if the court grants summary judgement on what is essentially a question of law or construction, it could be reversed by the Court of Appeal. Then, depending on the circumstances, it is possible that not only will the intended saving of time, money and human energy have turned out to be illusory, but delay and yet further waste will be the result. But, as pointed out by Lord Mackay, a countervailing possibility is that summary determination may so substantially cut down or simplify the trial as to make the risk of proceeding with the hearing sufficiently worth while.

Earlier, I mentioned Lord Woolf’s reference to a ‘mini-trial’. In an abstract sense any hearing which leads to the grant of summary judgement involves consideration of a subset of those matters that would have had to be investigated at the trial. The matter to be estimated, I believe, is not whether the summary determination hearing will take up this or that amount of time, but whether the alternative (doing it at the trial) will be worse. It may be worse if not only must the parties advance the same arguments but must engage in extensive preparations in the assembly of evidentiary materials which turn out to be unnecessary or irrelevant. The Williams & Humbert case itself was a summary determination which involved the decision of a question of law where there was a dissenting judgement in the Court of Appeal – by a future law lord – and which ended in the House of Lords. The report of the argument before the final tribunal occupies ten and a half closely printed pages. Despite this the House concluded that in the circumstances the judge had been right to dispose of the case by summary procedure.

When I speak of a difficult issue of law, I am not referring to an issue of law that cannot be determined on summary judgement at all: because it depends on a prior examination of disputed facts as to which both sides appear to have a case which is not fanciful.

I shall describe how I have exercised my discretion in this regard in the next section of this judgement.

THE COURSE OF THE PROCEEDINGS BEFORE ME.

Not because of any verbosity on the part of counsel, the hearing before me occupied six days of court time and extended late into the last evening. Even so it overran its allotted time and had to be suspended. It might appear that the case was unsuitable for summary judgement on that ground alone, except that it became very apparent to me that, if it had gone to trial in the normal way, it would have lasted a great deal longer: far longer than the time that has been estimated for that purpose. In the event there was not enough time for full argument on the two specific defences advanced by the Respondents, namely accord and satisfaction and laches and acquiescence. See the next section of this judgement.

At the conclusion of the hearing I decided that the best thing to do was to reserve judgement on the ‘Void Transfer’ point. If the Respondents were right on this point, it would dispose of the whole application, because the Applicants’ alternative contention (that if the transfer was not void it was voidable) was bound to fail. But if the Applicants were right, it would dispose of a central issue in the case, indirectly saving a vast amount of time at trial and in preparation for trial.

In the event, I have not found the main aspect of the ‘Void Transfer’ point to be at all easy. I have reflected on it for a long time – I freely confess, too long. It involves what is, to me anyway, a difficult point of law. Of course, I might have exercised my discretion by dismissing the application for summary judgement on that ground alone. If I had appreciated its difficulty at the outset I probably would have done so. I did not appreciate it until I had heard the excellent arguments of Mr Philip Marshall QC for the First Defendant.

On consideration, I have not felt that it would be just to the parties to take that course. If I had, it would have had to be gone into all over again at the trial anyway. I therefore concluded that I must make up my own mind, and that is what I have done. If I have got it wrong there exists a tribunal whose business it is to put me right. And the reader may be assured that this is not mere conventional modesty, because I believe that in any case the point of law cries out for elucidation at appellate level: see Goode, Principles of Corporate Insolvency Law, pages 147-150.

THE SPECIFIC DEFENCES.

Although, as I have said, I have not heard full argument on these issues, I can nevertheless say something about them and make one finding.

I believe that the defence of accord and satisfaction turns on the contemporary correspondence between the parties. At the start of the hearing I invited the parties to address me briefly on this point first, because if the claim was indeed settled there was certainly no point in considering other issues. As a result of what followed I allowed Mr Andrew Sutcliffe QC, who appeared for the Applicants, to put in further correspondence, and during the course of the hearing I invited the other parties to put in any other correspondence which they considered to be relevant to the issue, applying for an adjournment if so desired. I heard considerable, but not full, argument on this issue.

As a result of what I heard, it certainly did not strike me that accord and satisfaction was the Respondents’ best point. Or, to put it another way, on what I have heard so far – and I emphasise ‘so far’ – I can see that the Applicants might well succeed on it, even on an application for summary judgement. I say ‘so far’ because on this point I have not fully heard Mr Mark Platts-Mills QC (who appeared for Mr Davidson) and Miss Fiona Clark (who appeared for Mr Binney), as I have already foreshadowed.

I do not want to say much about the point at this stage, because the Respondents are entitled to develop it further if they want to. I will only say that, in the light of the additional correspondence adduced by Mr Sutcliffe QC, I presently have some difficulty in understanding how the witness Mr Mark Warburton (a business associate of Mr Paul Davidson and formerly in practice as a solicitor) could have stated that “the terms of the Settlement Deed … were agreed”: he does not say how and it seems to fly in the face of that correspondence. Compare paragraphs 33 and 36 of this judgement.

On this issue there was not enough time to hear the parties in full either. However, I have heard enough to convince me that on this point Mr Baldwin QC, who advanced it on behalf of all the Respondents, is at least partly right.

Essentially, the Applicants want it to be declared that Easyrad Limited is still the owner of the Patent because the divestiture was null and void – was writ in water. Suppose it was. Even so, it does not follow that a void transaction cannot have effective consequences. If a party who has a right to complain stands by or does not do enough, and allows the putative transferee (or, I would add, a third party) to modify his position as a result thereof, there may come a point in time when the wronged party is debarred from pursuing his claim. An obvious example is the expiry of a limitation period, but the same result can be produced under the doctrines of laches or acquiescence. I believe there is nothing at all novel in this concept – that a void transaction may become unchallengeable and hence, paradoxically, valid – and I can think of several illustrations ranging from administrative law to the sale of goods.

Now, when the Applicants found out about what I have called the ‘Void Transfer’ from Easyrad Limited to Mr Paul Davidson, they sensibly sought to deal with the matter by negotiation. There is nothing wrong with that, but it is beyond dispute that there came a time when those negotiations proceeded along a very definite course. The Applicants were not saying, “We intend to stop Oystertec from being floated on the strength of Easyrad’s Patent”. Instead, the tenor of their negotiations can be put, I believe not unfairly, as follows. “Floating a new company is probably the best thing to do, because it is likely to raise a lot of money. We shall go along with this – provided we are adequately compensated.”

On my provisional interpretation of the settlement negotiations, I believe it is clear that discussions concerning the terms (which involved not just the Applicants but Mr Barker) went on even after Oystertec was floated. But, of course, once Oystertec was floated, the Applicants lost an enormous amount of negotiating power.

Almost certainly they could have prevented the flotation altogether if they had wanted to. Not even by taking objection in a court of law, but by making a fuss in the financial markets.

According to Oystertec’s evidence, neither Mr Paul Davidson nor Mr Adrian Binney told the directors who were actually in charge of the flotation that there was any problem with Easyrad Limited. I believe it is most unlikely that any responsible flotation broker or similar professional would have dared to take Oystertec to the market when there was such a cloud hanging over the title to its principal assets; at the very least, without mentioning it in the prospectus.

My belief is supported by the fact that for a long time there was on open record a challenge to Oystertec’s ownership of the Patent – but it was made, not by the present Applicants, but by another of Easyrad’s shareholders, a company called Lancashire Fittings Limited whose leading light was a Dr Wakelin (see further below). Lancashire Fittings commenced proceedings in this court against Mr Davidson and on 5 January 1999 actually obtained an interim injunction which prevented Mr Davidson from disposing of the patent. It was not a derivative action and so if the case had gone to trial it is not clear to me how Dr Wakelin’s company could have succeeded. It is also true that the injunction was soon discharged because Dr Wakelin’s company did not come up with security for costs.

But what matters for present purposes is that from 11 January 1999 notice of the challenge was entered in the register kept at the Patent Office, for all the world to see. Any competent flotation professional, anxious to ensure that due diligence was accomplished, would strongly have been put on enquiry. “What’s this all about? Who are Lancashire Fittings?”, we can hear him exclaim. Now, what happened? It was not until 6 February 2001 that Mr Paul Davidson came to terms with Dr Wakelin and eight days later the Oystertec prospectus was issued. The inference must be that until that problem had been sorted out the prospective flotation was stymied.

It is very understandable that the Applicants did not start proceedings themselves, seeing that they knew Dr Wakelin was making the running. But it is precisely because they were allowing him to make the running, on behalf of his own company, that they ran the risk that he, Dr Wakelin, might come to terms with Mr Davidson at any time.

In the above circumstances, I believe that it would be quite wrong to grant the Applicants relief in the terms they are seeking. The effect would be to declare that Easyrad Limited is the owner of the Patent, when the flotation had gone ahead largely on the strength of that Patent and had raised a large amount of money – precisely the result that the Applicants were contemplating. I do not mean that I should merely refuse to grant a declaration on summary judgement. I would go further and decide that on this aspect the Respondents are clearly right. I would be prepared to strike out the Claimants’ unqualified proprietary claim. It seems to me that I must consider, not only the position of Oystertec PLC, but also the plight of the investing public who subscribed on the strength of the prospectus. Nothing therein warned them that there was a problem with Easyrad Limited.

That said, I do not mean to imply that the Applicants are entitled to no relief at all on the ground of laches or acquiescence. At this stage Mr Baldwin QC has not carried me that far, although he may or may not be able to show that I cannot give summary judgement on it. The equitable defences of laches and acquiescence are not necessarily absolute in their nature, and a declaration is an equitable remedy which is granted in the discretion of the court. See Spry, Equitable Remedies, 6th edition, 2001, especially page 4:

Now, if the ‘Void Transfer’ point is valid the court has, in the abstract, a jurisdiction to grant a declaration accordingly. Whether it will exercise that power will depend on a discretion to be exercised having regard to the circumstances of the case. As I have explained, to the extent that I am firmly with Mr Baldwin QC it is because I am convinced that the Applicants chose to go down the ‘compensation’ route when negotiating over the Patent, and subject to satisfactory compensation were content for the flotation to go ahead. Effectively, insofar as they had anything to do with it as minority shareholders who were in a position to bring a derivative action, they gave up Easyrad’s claim to be the owner of the Patent on condition that compensation be paid. So be it. But it does not follow that the just result is that Easyrad should obtain no relief at all: not even financial compensation. If the court possesses the jurisdiction to grant the declaration, it seems to me that it must have the power to do the lesser thing: to refuse to grant it, but on terms that compensation be paid to the satisfaction of the court.

There are other routes by which the same result might be achieved. See Spry, op cit, Chapter 7: “The Award of Damages in Equity”.

And if compensation be due, it does not follow that the amount thereof should equal what the Applicants would have been willing to accept at the time. They were negotiating in circumstances where their claim was being denied, and where it would have required expensive and difficult court proceedings to establish it. Indeed, I have heard enough to convince me that the way through the legal labyrinth, if any, would not have been obvious to most lawyers.

It we now imagine that the case is reduced to a claim for financial compensation, it bears a very different aspect regarding laches and acquiescence. The Applicants say that Oystertec had the best possible notice of the problem about Easyrad because at least two of Oystertec’s directors, namely Mr Paul Davidson and Mr Adrian Binney, were its authors and knew that the Frasers were complaining. The Defendants say that was not sufficient notice to Oystertec because those of its directors who were in charge of the flotation were told nothing about Easyrad’s claim; and I was treated to an illuminating discussion about the doctrine of notice in relation to a company and what individual was the “mind” of the company for that purpose.

But this may be off the point. The point is: is there a good defence of laches or acquiescence? Put shortly at the risk of some oversimplification, those are equitable defences which, when they succeed, do so because it would be unconscionable for the claimant to succeed in all the circumstances having regard to how he has behaved in relation to the advancement of his complaint. His state of mind at the time is therefore highly relevant. Assume that the appropriate Oystertec directors were told nothing by Davidson and Binney – in gross breach of their due diligence obligations pursuant to the prospective flotation. It seems to me that the Applicants could scarcely be to blame for failing to foresee it.

However, I do not go into these matters any further because at this stage, pending completion of the argument, I have not decided that Easyrad Limited is entitled to equitable or other compensation. Mr Baldwin QC had a more general point. It was that it is not possible for the court to grant summary judgement because questions of laches or acquiescence, by their very nature, require a careful weighing of the precise facts and circumstances appropriate to the exercise of a sound discretion; and in this case those facts and circumstances are in dispute. He may be right, but not necessarily so. If he is, it does not deprive the Applicants of any entitlement they may have to summary judgement on other issues.

CIRCUMSTANCES LEADING UP TO THE ‘VOID TRANSFER’.

Before proceeding further I believe I ought to digress and say something about the Register of Patents.

There is kept at the Patent Office a register which is open to public inspection and which records, amongst other things, the ownership of patents. Registration is not equivalent to legal title. It is only prima facie evidence: Patents Act 1977, s.32(9), as amended. By section 34 the court may, on the application of any person aggrieved, order the register to be rectified by the making, or the variation or deletion, of any entry in it – which itself implies that any given entry in the register may be wrong. It follows that you cannot know for certain, just by going to the Patent Office and inspecting the register, who is the owner of a given patent. If you want to buy the patent you cannot be quite sure that the person who is registered as the owner can give you good title.

Instead, the way the system is supposed to work in practice may be illustrated as follows. Anybody who buys a patent is well advised to register the fact as soon as possible. If he fails to do so he runs the risk that the vendor may turn round and sell it to another person who does not know of the earlier sale. If that other person proceeds to register his ownership at the Patent Office, the registration will defeat the earlier sale: section 33. The theory is that since people can be taken to know this, and can be trusted to act diligently in the protection of their own interests, they will hasten to register their ownership as soon as it is acquired. Thus the register probably will record the true position at any given time. I believe that many people take it on trust. But it is not a certainty.

When legal proceedings are taken concerning a patent the Patent Office will enter notice of that fact on the register.

With regard to the Patent in this case the register records as follows.

By the way, this last entry conceals a mystery. Someone has now applied to revoke the Patent but, unusually, his or her identity is unknown. The proceedings were brought in the name of the undisclosed principal’s patent agents.

There is no doubt that before there was any question of Mr Davidson having acquired the Patent from Easyrad Limited – which is supposed to have happened by an assignment of 22 October 1998 – the company was registered at the Patent Office as the proprietor of the Patent. But I must describe how that came to be so.

The invention was made by Mr Paul Davidson at a time when he was working as a consultant for a company called Artform International Limited on terms that any inventions he made would belong to Artform. Artform applied for the Patent on 6 June 1997. The leading light in Artform was a Mr John Barker, who has played a certain role in this case. Mr Barker was in the process of disposing of Artform and he was willing for the Patent to be sold if a sufficient purchase price were to be forthcoming. He was amenable to the Patent being sold to Mr Paul Davidson for £50,000; but Mr Davidson himself did not have the money.

On 30 September 1997, and while the application for the Patent was pending, it was assigned by Artform to Lancashire Fittings Limited – Dr Wakelin’s company – for a payment of £50,000 plus VAT. There can be no doubt that the money came from the resources of Lancashire Fittings Limited.

It is asserted in the witness statement of Mr Paul Davidson that “it was agreed and understood by Dr Wakelin and myself that LF Ltd would hold the rights to the Patent on my behalf and all rights to the Patent would remain with me”. This is an assertion that there was a trust – compare paragraph 36 of this judgement – but we are told nothing about how it was created. If the agreement was in writing, where are the documents? If orally, when and where, and what precisely was said? It is not as if the assertion was so obviously uncontroversial as not to call for factual support: why, especially, should Dr Wakelin’s company pay out good money to acquire the Patent for the sole benefit of Mr Paul Davidson? (It would be otherwise if the Patent was to be held on trust for a new corporate vehicle for the ultimate benefit of all the shareholders therein (Footnote: ¹).) The assertion was not made in the previous litigation between LF Ltd and Mr Paul Davidson. See, in particular, paragraph 8 of the affidavit of Mr Davidson in those proceedings. The assertion is disputed by Dr Wakelin, albeit not in a witness statement but in a letter and orally to Mr Fraser. Mr Binney supports Mr Davidson’s version but he does not claim to have been present and he is only repeating what he says Mr Davidson told him. In any case there is a document which, as is accepted, was written by Mr Binney only a day after the assignment to Lancashire Fittings Limited. Mr Binney says it was only written “for discussion purposes”, but I do not believe that matters for present purposes: the point is, what was the assumed factual basis for those discussions? The document is headed “Draft Heads of Terms re Easyrad” (Footnote: ²). It asserts:

Furthermore, on 19 October 1997 – less than a month later – Mr Binney prepared yet another document for the purpose of briefing solicitors. By now Easyrad Limited had been incorporated, Mr Fraser was one of the investors, the document refers to those facts, and it says that the Patent belonged to LF Ltd. If Mr Davidson is right the Patent still belonged to LF Ltd on trust for him, but nowhere does the document so assert. It just says that the Patent will be assigned from LF Ltd to Easyrad Limited.

Easyrad Limited is a company that was incorporated (under the name Vitalpace Limited) on 13 October 1997 and acquired its present name three days later. At that stage the only directors and shareholders were Mr Paul Davidson and Mr Adrian Binney, who was its company secretary. There is a dispute about who was the company secretary of Easyrad at various times later, but the Applicants accept that I cannot resolve it on an application for summary judgement. I shall therefore assume that Mr Binney was company secretary at all material times, which is what the Defendants contend.

There is no doubt that Easyrad Limited was intended to be a vehicle for the acquisition of the Patent. For that purpose it required sufficient capital, which Mr Davidson and Mr Binney did not possess.

By the time that Easyrad was incorporated Mr Paul Davidson had been trying to interest investors in the Davidson inventions and had succeeded in attracting the interest of the Claimants Mr and Mrs Fraser; also the interest of Dr Wakelin of Lancashire Fittings Limited, to whom I have already referred.

On 21 November 1997 the Patent was assigned in writing from Lancashire Fittings Limited to Easyrad Limited for a consideration of £50,000 plus VAT. The consideration was deferred, it being treated as an interest-free loan from Lancashire Fittings, repayable if and when Easyrad had made a profit of £500,000. So the £50,000 plus VAT amounted to a risk that Dr Wakelin’s company was taking on Easyrad.

The assignment of the Patent to Easyrad Limited coincided with the restructuring of the membership and directorship of that company. On the new Board of Directors were Mr Paul Davidson and Mr Adrian Binney, the First Claimant Mr Michael Fraser, a Mr Sankey, and Dr Wakelin. The shareholders were Mr Davidson, Mr Binney, Mr Fraser and his wife Agatha, Mr Sankey, Dr Wakelin’s company Lancashire Fittings Limited, and a Mr Craig. On the same day the Frasers lent Easyrad Limited the sum of £48,800 free of interest, repayable if and when the company had made a profit of £500,000; it never did.

The next stage was that Mr Davidson approached Mr John Barker – whose company had been, of course, the original applicant for the Patent – and invited him to invest £58,000 Easyrad Limited. It is Mr Barker’s evidence that he was prepared to invest because he had confidence in Mr Fraser even though he had had unsatisfactory experience of Mr Davidson, though the point does not really matter for present purposes. It is not disputed that on 3 August 1998 Mr Barker was told that nearly all necessary arrangements were in place, whereupon he departed for about a month to New Zealand.

On 30 November 1998 Mr Paul Davidson wrote a letter addressed “To All Shareholders”. There is some question as to when the shareholders received this letter, if indeed they all did so, but I do not think it matters for present purposes. The letter began as follows:

The letter proceeded to assert that Mr Barker had “refused to provide the cash” and that he, Mr Davidson, had found alternative backers and offers had been made to return Mr Barker’s investment and Mr Fraser’s, and that there was an impasse. It continued:

He said that if his position as the new owner was acknowledged and all shareholdings in the company were transferred to him, he would “ensure that all debts will be repaid and you will all get your investments back”, though he did not specify precisely when or how. Otherwise “all the inventions will simply be put on ice for the three years that it will take for any case to be heard at the patent court”.

As I have foreshadowed, the “totally legal and proper way” in which Mr Davidson claims to have acquired the Patent was by an assignment from Easyrad Limited dated 22 October 1998. The document is signed by Mr Paul Davidson on his own behalf and by Mr Adrian Binney on behalf of Easyrad Limited. It has been referred to in this case as “the Easyrad Assignment”.

What the Applicants ask me to do is to decide that neither Mr Binney, nor anyone else purporting to act on behalf of Easyrad Limited, could lawfully and effectively have executed the document without a special resolution of the company. Since (as is common ground) no such resolution was made, it follows, they say, that the Patent was never transferred from Easyrad Limited to Mr Paul Davidson or anyone else, and remains the property of Easyrad Limited to this day.

In 1998 there was in force a shareholders’ agreement in relation to Easyrad Limited dated 21 November 1997. All the shareholders and Easyrad Limited were parties to that agreement. By clause 11.1.3 the Company or the Board could not, without the prior written consent of the holders for the time being of not less than 71% of the Shares, and otherwise than in the ordinary course of its business, transfer, assign or dispose of any substantial part of its property or other asset.

Mr Paul Davidson and his supporters did not have 71% of the shares and no such resolution was made or attempted. Therefore, as is common ground, Mr Adrian Binney had no general authority to execute an assignment of the Patent to Mr Paul Davidson and that if it were a question of his general authority, the transaction would be a nullity.

But what the Defendants say is that the assignment of 22 October 1998 to Mr Davidson was valid and effective because, on 16 October 1997 – about a month before the shareholders’ agreement, three days after Easyrad Limited was incorporated, and at a stage when it had no shareholders or directors except Mr Davidson and Mr Binney – the company had given Mr Binney a kind of power of attorney to execute documents on its behalf such as the Easyrad Assignment. The document of 16 October 1997 has been variously referred to in this case, but for the sake of convenience I shall call it “the Easyrad Insolvency Agreement”.

I shall quote the document in full.

The Applicants accept the authenticity of the signatures, but not that the document was executed on the date that it bears. They suggest that the document was concocted after the event. Of course, they accept I cannot possibly decide that question on an application for summary judgement nor do they invite me to do so.

It is Mr Fraser’s evidence that the Applicants knew nothing of this document until well after the event: to be precise, on 15 January 1999. Mr Paul Davidson says “I do not accept that Mr Fraser did not know about the Easyrad Agreement”, and says he discussed it more than once with him. He does not say when Mr Fraser knew or when those discussions took place. He adds that “Mr Fraser conducted no due diligence at all prior to investing”, which may suggest lack of advance knowledge. Even so, I shall assume that Mr Fraser knew about the document at all material times.

WAS THE TRANSFER VOID?

In over 30 years’ experience of patents and intellectual property I have never come across a similar agreement and I do not conceal that when I first saw it I was astonished. I am, of course, familiar with the standard term in a patent, trade mark, copyright, or registered design licence by which the licence may be determined when the licensee becomes insolvent. Like the analogous provision in a lease of land, it is fairly commonplace. The licence may be exclusive, which means that none but the licensee, not even the intellectual property owner himself, are allowed to exploit the subject matter. But the determination of the licence upon insolvency is in no way surprising, it is indeed a concept that the ordinary businessman would expect. In much the same way, even the man in the street would suppose that a lease would come to an end if the tenant became insolvent and could not afford to pay the rent. But what we have here is different. It is the actual patent which is divested from the company upon its insolvency. Let me try to explain why I believe the difference matters.

It is commonplace for an exclusive licence to be granted for the lifetime of a patent. The exclusive licence can bring proceedings for infringement. So what is the main practical difference between a patent and a full-term exclusive licence? (A good exam question for students, by the way.) The answer is: in normal circumstances, hardly any, but it is far otherwise in the event of the licensee becoming insolvent. That is the main practical reason why businessmen may prefer to grant an exclusive licence instead of making an outright assignment.

There can be no doubt that the Patent was a principal asset of the venture which was to be carried out by the corporate vehicle Easyrad Limited. If one asks, what substantial assets had the company apart from the patents, the answer is: none. Without those patents, and in particular the Patent (compare Oystertec’s own prospectus) the venture had no practical purpose. The patents were, so to speak, the substratum of the venture, although I do not mean to use the expression in any technical sense. Now, whether a patent is held on licence or absolutely is a fact prima facie ascertainable from the register at the Patent Office. Furthermore it was also shown in the company’s accounts. In fact, the accounts that have been produced show that the Patent was valued at the acquisition cost (about £60,000) (Footnote: ³) although, of course, businessmen do not acquire such an asset unless they hope to make a great deal more. Trade creditors and bank managers are interested in what assets a company owns. Even if those were not official published accounts, they were management accounts, the sort of thing a bank manager wants to see.

Now, if it had been held out to the outside world that Easyrad Limited had a mere licence, exclusive or not, its perceived credit worthiness would have been quite different. But anyone making routine enquiries – for example, by consulting the register or if he was a bank manager asking to see the current accounts – would have been led to suppose that Easyrad Limited was the owner of a patent, and not a mere licence. A licence is well known to be determinable on insolvency, or probably so. What is not well known, indeed in my experience is highly unusual, is that somebody else should have a right to call for an assignment of a patent to him in the event of insolvency.

I want to make myself clear. An analogy may assist. Suppose there is a new hotel business, not making any money yet, but supported by its investors by way of long term loans. The only assets in its books are its freehold land and buildings. Because of the long term loans it is technically balance sheet insolvent. You are a trade creditor. Are you willing to give it more credit? Maybe you are. Your judgement will depend on your expectation that the people behind it are serious and can continue the venture. If, instead of freehold, it was shown as a mere lease, you might be much more nervous. For you are advised that it is commonplace for leaseholds to be determinable on insolvency. If the landlord did determine the lease there would be no remaining venture at all. However, the company figures as owning the freehold, not a lease. But what would you say if you found out that the company had a side-deal with one of the directors by which he could, at any time, and without warning, divest it of the freehold on the ground of the company’s insolvency?

The Defendants contend that Easyrad Limited was indeed unable to pay its debts within the meaning of s.123 of the Insolvency Act 1986, because the company was unable to pay its debts as they fell due, see s.123(1)(e), or because its was balance sheet insolvent, see s.123(2). Hence by clause 3 the Easyrad Assignment was effective. The Applicants accepted before me that on an application for summary judgement they could not dispute the company’s insolvency on those grounds.

Even so, the Applicants dispute the validity of the Easyrad Insolvency Agreement, on the grounds that:-

On the second point Mr Sutcliffe QC submitted that both s.123(1)(e) and s.123(2), which define the expression for the purpose of winding up proceedings, require, as an essential ingredient, that the state of insolvency have been proved “to the satisfaction of the court”. Therefore, where clause 3 says “unable to pay its debts within the meaning of s.123 of the Insolvency Act 1986” the same essential ingredient should be incorporated by reference. At the date of the Easyrad Assignment (indeed, at the start of these proceedings) nothing had been proved to the satisfaction of any court. Hence the Easyrad Insolvency Agreement does not authorise the Easyrad Assignment.

Mr Philip Marshall QC for the Defendants contended that it was enough that, at the date of the Assignment, a state of affairs existed such that, if a court had adjudicated on the point, it would have found there to be insolvency. And for the purposes of summary judgement it would be enough for the issue to be arguable now.

If so, the Easyrad Insolvency Agreement in effect did not require Mr Paul Davidson to notify the Board of Directors that it was intended to exercise the power of deprivation. It was enough unilaterally to notify Mr Binney in his capacity of company secretary. If Mr Binney then told the other directors – and, by the way, I believe it is common ground that he did not do so – it would be too late for them to adopt remedial measures, for example, to try to bring in some sort of white knight or rescue package. The deed would be done and the Patent would have gone.

I was strongly attracted by Mr Sutcliffe’s submission, because it seemed rather extraordinary to me that a company could be in that hair-trigger position. In contrast, under the Insolvency Act 1986 a company has an opportunity to obtain a rescue package and, if successful, is unlikely to be wound up. Service of the petition puts it on notice, which may give the company enough time. It is anyway quite common for the court to adjourn the proceedings, precisely in order to put together a rescue package. Mr Sutcliffe’s point, therefore, is not just semantic. If you choose to incorporate s.123 of the Insolvency Act you take it warts and all. You take it with the provision that nothing final can happen until the court finds insolvency.

The Applicants made the telling point that on the Defendants’ reasoning the company had been balance sheet insolvent since about November 1997. It owed long term investors over £170,000 by way of deferred loans. They ask: “Are Mr Binney and Mr Davidson seriously alleging that for every penny investors lent to Easyrad they were effectively making it easier for Mr Davidson to transfer out of Easyrad the one tangible asset that represented their security?”

But Mr Philip Marshall QC has pointed out to me that the point is not a pure question of law or construction. The clause must be construed in the light of the factual matrix: what was known to the parties at the time of the agreement. As to that, the only human parties were Mr Paul Davidson and Mr Adrian Binney, at that stage the sole directors. They say that the Easyrad Insolvency Agreement was based on a standard form they used arising from a previous unhappy experience. Further, Mr Davidson was a man of limited means (he could not afford the £50,000 for the Patent and he could not afford to buy a house) and so it was unlikely that the parties would have thought the bringing of legal proceedings was a realistic prospect, to say nothing of the delay. At any rate, it would not be right to decide this point on an application for summary judgement.

With some reluctance, I am on balance persuaded that Mr Marshall is right for summary judgement purposes. (Nobody argued that the document was akin to a power of attorney and therefore fell to be construed narrowly, and so I shall say nothing on that.)

But, if so, all the more reason to scrutinise the legal validity of this document with some care. Here is a business financed by long term loans from its investors. It is therefore balance sheet insolvent: the more enthusiastic the investor-support, the greater is its balance sheet insolvency. The business has a principal asset. Without that asset the business has little or no reason for existence. The asset is shown to the outside world as the property of the business without qualification. Yet at any moment the asset can be stripped out of the business, on the grounds of its insolvency, by unilateral action, and without prior warning. There is no provision for independent valuation of the asset and, what is probably more important in practice, no machinery by which the asset may be offered for sale by the company to alternative investors – a ‘matching offer’ provision.

The effect of the divestiture is to take the asset out of the business so that it is not available for the satisfaction of its creditors in the event of its liquidation. It might be said that Parliament has dealt exhaustively with the consequences of insolvency, in the Insolvency Act 1986 and elsewhere, and that in the event of the insolvency of a company or individual the proper course is to make use of the machinery provided by that legislation. The liquidator, for example, should be the person who takes the point, and not the company itself when, as here, there is no liquidation.

I do not believe that contention is correct. In Money Markets Ltd v. London Stock Exchange [2002] 1 WLR 1150 Neuberger J, in what I would respectfully describe as a magisterial review of the authorities over nearly 200 years, held at page 1173 that they established the following general principle:

The authorities he cites show that the contract is void and unenforceable.

At pages 1182-1183 he said:

It does not follow that it is a matter for the liquidator – that a company ought to go into liquidation if it is balance sheet insolvent or cannot pay its debts as they fall due in the ordinary course of business. A better remedy may be for the directors to try to save it – perhaps by offering one of its principal assets for sale at full value, or by further support from its investors.

The authorities cited by Neuberger J touch on a subtle distinction between, on the one hand, a grant of an interest in property (for example, a lease) determinable upon bankruptcy, which is held to be valid, and a grant of a property on terms that it shall be forfeited, which is not. He quotes Professor Goode’s book (already cited above) to the effect that the distinction is “little short of disgraceful to our jurisprudence when applied to a rule professedly founded on considerations of public policy”. According to Professor Goode the distinction is not recognised in America, an approach which he considers to be sound.

The distinction is well established in our law. But what has struck me is that as applicable to this case there is a certain practical difference which may make it intelligible, and I have already alluded to it. I have stressed the point: how does the position look to the outside world? If the business has an asset which, according to the common expectation of mankind, may well be determinable in the event of insolvency, as is often the case with a lease, that is one thing. It is quite another matter if the asset that is held out to the outside world – on the Patent Office register, for instance – is not subject to a similar expectation. Creditors may have very different expectations.

Mr Marshall QC cited Carreras Rothmans Ltd v. Freeman Mathews Treasure Ltd [1985] Ch 207 for the proposition that the principle has no application on the event of the mere insolvency of a business, but only on an event which is the first step in insolvency proceedings, for example an act of bankruptcy or the presentation of a petition for winding up. I do not believe the law is thus limited: if it were, it would be mere pointless form and the mischief would not be addressed fully. That was a very different case and the actual proposition it rejects is not the one before me now. In Whitmore v. Mason (1861) 2 J & H 204, a decision of Page Wood V-C (afterwards Lord Hatherley), which was cited by Neuberger J, it was put as follows:

It was argued by the Defendants here that although the divestiture clause might be void as against the creditors, it would not be void as against the company. I do not believe that that is right. A transaction is either a nullity or it is not. If the point had to be taken by the creditors it could not be done until there were insolvency proceedings. The divestiture clause would be, not void, but voidable. Yet Whitmore v. Mason established that an act of bankruptcy was not a necessary condition precedent.

I have very carefully considered the point because at one time it troubled me. It troubled me because there is a passage in the judgement of Cotton LJ in ex parte Jay (1880) 14 Ch D 19, 26 which might seem to hold against what I have said. His Lordship said:

The other Lord Justices do not allude to it and the observation was not necessary for the determination of the case. Even so, I was concerned lest Cotton LJ’s observation was based on earlier case law known to his Lordship but not cited to me. I have therefore undertaken a careful investigation of the case law prior to that case. I have not found anything to support the observation. On the contrary, I believe the observation (“on the builder’s bankruptcy”) was contrary to what was held by Page Wood V-C in Whitmore v. Mason, above.

Neuberger J held that the principle I have quoted is subject to a number of exceptions, some of them ill-defined. He summarised these on pages 1182-1883, but I do not believe they are applicable to this case.

I would hold that, where a business owns an asset of substantial independent value, whose existence lies at the heart of the venture, and that asset is held out to the outside world as the property of the business without qualification, an agreement entered into by that business according to which it may be peremptorily deprived of that asset on the grounds of its insolvency, by unilateral action to be taken pursuant to that agreement, does not constitute a relevant exception to the principle. Thus such an agreement is to that extent null and void.

Mr Baldwin QC submitted that the asset was practically worthless at the time of the Easyrad Assignment. It was true that the Oystertec prospectus and the success of the flotation might strongly suggest otherwise, he said, but those were different circumstances. A lot of money had been spent by or on behalf of Oystertec in developing the product. Oystertec, conditional on the success of the flotation, had ample funds to exploit the Patent by licensing. Mr Davidson was on board and so were several enthusiastic entrepreneurs. But his real point was that it would be a matter for valuation evidence and that I could not hold that the Patent had any substantial value on an application for summary judgement.

I have no hesitation in rejecting that submission. What does it mean to say that a patent has value? Here one must think outside the box. In everyday life an asset – a laptop computer, a bag of sugar, a car – has an ascertainable value because there is a market for such an asset. To find out its value you go into the market, or get evidence from someone who knows that market. Even if the asset in question should be unique – an old master painting, for instance, or a stately home – it is still possible to get an approximate idea of its value, because there are markets in which broadly comparable things are sold and those markets have much volume.

In the case of a patent for a new invention, a copyright in a new play, and so forth, the position is far otherwise. An invention is, by definition, unique and non-obvious. If it were otherwise it could not validly be patented at all. The whole point of an invention is that it is different from any other invention. The better the patent, the less comparable it is. There is no ‘market’ where one can just go out tomorrow and sell inventions as if they were agricultural produce. In short, in the case of a patent for a new invention which has yet to be proved commercially it is meaningless to speak of its value, if by that one unconsciously means its immediate value in a market that has volume.

Yet it must be evident that it is possible for such a patent to be valuable. It was acquired for about £60,000, and thus valued in the accounts. If a sufficiently funded venture like Oystertec could raise huge sums of money in the stock market on the strength of the prospectus which I have quoted earlier in this judgement, it was not physically impossible for others to do it. Suppose in favour of the Defendants that Easyrad Limited had come to a dead-lock and no further progress was to be expected in its business. It was still possible for the Patent, and any of the other patents which Mr Paul Davidson claims to have divested from the company, to be offered to an outside vehicle got up in a manner similar to Oystertec. It is one thing to assume that it might not have been so successful as Oystertec in raising money on the stock market. It is quite another to say that the patents had no substantial value at all.

Mr Sutcliffe’s last point is that, whatever may be the validity of the Easyrad Insolvency Agreement, the Patent in question was not within its scope anyway. The relevant provision is clause 1:

The phrase “legal owned for a consideration of £1:00” must, I think, mean “legally owned by Easyrad for a consideration of £1.00”, and that is what the Defendants say.

Mr Sutcliffe QC argued that Mr Davidson was never the owner of the Patent and so the Agreement has no application. I do not understand that part of his argument. The Agreement does not specify that Mr Davidson himself must convey the property to Easyrad. Why would it not suffice if Mr Davidson were to procure that another person, the owner of the patent, should convey it to Easyrad?

A more telling point, in my judgement, is that in the case of the Patent in question it was not transferred to Easyrad for a mere consideration of £1. As we have seen, the Patent was assigned from Lancashire Fittings Limited to Easyrad Limited for a consideration of £50,000 plus VAT. The payment of the consideration was deferred until Easyrad had earned a certain level of profit, an event that did not happen.

In my judgement, the proper construction of this clause is that Mr Davidson had to transfer or procure the transfer of the patents to Easyrad for a consideration of £1, and that was a condition precedent for the operation of the divestiture clause. I therefore hold that the Applicants succeed on this ground also.

Argument should be concluded on the accord and satisfaction and the laches and acquiescence defences. A day should suffice for the purpose and the parties may submit supplementary skeleton arguments for the purpose.

The Applicants succeed, to the standard required for summary judgement, to the extent that they contend the Easyrad Assignment was not effective to divest Easyrad Limited of the Patent. However, in the light of the laches and acquiescence defence as accepted by me so far, I shall in any event refuse to grant a declaration that the Patent is owned by Easyrad Limited now, but this is subject to the possibility of the payment of adequate compensation to Easyrad Limited, such compensation not necessarily to be limited to the amount the Frasers were prepared to accept at the time of the Oystertec flotation. Whether such compensation is indeed payable will depend on the outcome of the accord and satisfaction defence and the remainder of the laches and acquiescence defence.

RESUMED HEARING.

This judgement has been prepared and should be read as a continuation of the judgement I delivered in this matter on 8 September 2003 (Footnote: ⁴). There are three matters outstanding. First, the ‘accord and satisfaction’ defence: whether the claims had arguably been compromised in the year 2001. Secondly, whether there is an arguable defence to the claim for financial compensation for the loss of the Patent by way of laches and acquiescence. Thirdly, whether Easyrad Limited has a claim for damages against Mr Paul Davidson and Mr Adrian Binney for breach of fiduciary duty.

This last claim should be distinguished from that considered earlier in my judgement: whether the assignment from Easyrad Limited to Mr Paul Davidson of 22 October 1998 was voidable because made in breach of the fiduciary duties owed by Mr Davidson and Mr Binney to Easyrad Limited. In paragraphs 21 to 23 I held that this ground of complaint was bound to fail, because neither the Claimants, Easyrad nor anyone else had avoided those transactions. On the contrary, the Claimants, by electing to recoup themselves from the proceeds of the flotation, had affirmed them.

But at the resumed hearing Mr Sutcliffe QC pointed out that it was not inconsistent with my judgement for Easyrad to claim damages against Mr Paul Davidson and Mr Adrian Binney for breach of fiduciary duty. I agree. I was not holding that there had been no breach of fiduciary duty, merely that, if there was, it could not help Easyrad to establish its proprietary claim to the Patent.

However, because the claim for damages for breach of fiduciary duty had not been foreshadowed very clearly in Mr Sutcliffe’s skeleton argument, and because it was not mentioned in my previous judgement, there was an obvious risk that counsel for Mr Davidson and for Mr Binney might have been lulled into a false sense of security. I therefore asked them whether they wished to have an adjournment. In the event, they did not. The task of arguing the defence to this claim fell largely to Miss Fiona Clark, and I wish to pay tribute to her address to the court. In my opinion it was a model of what such a speech should be.

In addition to those matters the Claimants say that if the Easyrad Insolvency Agreement was invalid, it should be declared that similar agreements entered into by the companies Sankey Product Developments Limited and Davidson Tools Limited were invalid too. The Defendants do not agree. They say there was not enough evidence about the circumstances surrounding those agreements nor were those issues properly argued at the hearings and it is too late to do it now. I agree with the Defendants. For example, it has not been shown to my satisfaction that the patents which were the subject matter of those agreements were held out to the world as being the property of those companies.

Hence the issues I must now deal with are as follows:

I shall consider issue (3) first, followed by (1) and (2). Some of the narrative which underpins those issues is common to both and so the next section of this judgement should be regarded as relevant to the ensuing section.

ACCORD AND SATISFACTION.

It will be recalled that Oystertec was floated in February 2001. It is contended on behalf of the Defendants that, before that happened, Mr Paul Davidson arrived at a binding settlement with Mr and Mrs Fraser, Mr Barker, Dr Wakelin and his company Lancashire Fittings, and a Mr Craig. Having heard some argument on this issue at the previous hearing I was inclined to believe that it did not look like a very promising defence, as I have already intimated. I have now heard further argument and have had a further opportunity to peruse the documents. As a result I am quite satisfied that the defence is not only unpromising: it is hopeless.

According to the Claimants, during the period from December 1999 to 22 May 2001 they endeavoured to settle their dispute with Mr Paul Davidson on the general basis that upon the flotation of Oystertec he, Mr Davidson, would pay the Frasers, Mr John Barker and Dr Wakelin sums equal to their investments in Easyrad Limited, Sankey Developments Limited and Davidson Tools Limited plus interest. (Like Easyrad, those two last-named companies were corporate vehicles which had been intended to exploit certain Davidson inventions). It was a condition of the settlement that Mr Davidson would purchase certain assets of a company of Mr Barker’s called Polysleeve Limited for a sum in the region of £500,000 (“the Polysleeve deal”). Subsequently the requirement to have Dr Wakelin and his company as parties was dropped. Negotiations dragged on, deeds of settlement were prepared but were never delivered (Footnote: ⁵), the Oystertec flotation went ahead and eventually Mr Davidson decided he was no longer interested in pursuing a settlement. Thus there was no accord and satisfaction.

According to Mr Paul Davidson, there was indeed an accord and satisfaction. On an unspecified date in January 2001 there was an oral agreement. We are not told whether it was made at a face-to-face meeting or by telephone, or who was present. The parties to this agreement were Mr and Mrs Fraser, Mr John Barker, Dr Wakelin and his company Lancashire Fittings, a Mr Craig and Mr Paul Davidson. The terms of the settlement were recorded in the deeds but the execution and delivery of the deeds was not necessary for the settlement to become binding. On the contrary their execution and delivery were to have been part of the performance of the settlement agreement, not its making. The proposed Polysleeve deal was not an integral part of the settlement at all but an independent issue.

The evidence touching and concerning these matters is chiefly to be found in the following passages in the witness statements: 2nd Fraser §§40-41; 1st Davidson §38; 4th Fraser §36; 2nd Davidson §§38-41; Warburton; 2nd Stone §§4-8; 3rd Stone §§5, 7 and 11. Those statements provide the background to the dispute. It is not my function to weigh their contents against one another, for this is an application for summary judgement. See Section II of this judgement (especially paragraphs 33-36). Provided it reasonably condescends to particulars of fact, I must prefer the defendants’ version at this stage unless it is apparent from the contemporaneous documents that it is fanciful – is entirely without substance. In my judgement, it is.

In this case the contemporaneous documents consist of the correspondence and enclosures. The correspondence has conveniently been collected into a single bundle. Having read and considered those documents I am in no doubt that the Defendants’ story – that there was a binding oral agreement sometime in January 2001 – must be rejected.

A person who played an important role in the settlement negotiations was Mr Mark Warburton. At the time he was a solicitor with a distinguished Manchester firm but he retired in January 2002 and now describes himself as a “business associate” of Mr Paul Davidson. (What Mr Warburton did, or perhaps failed to do, is also relevant to the defence of laches and acquiescence, the subject of the next section of this judgement.)

On 14 December 1999 Mr Warburton on behalf of Mr Paul Davidson wrote a “without prejudice” letter to Mr Fraser. It began as follows:

The letter went on to say that Mr Davidson was unwilling to effect repayment “unless and until he has realised some value for the intellectual property rights which had been the focal point of your investment”; and that it was anticipated that he would be in a position to pay within the next two or three months. A form of Deed setting forth the proposed repayment mechanism was enclosed. The letter concluded by saying that:

We know that similar letters were written to Mrs Fraser and Mr John Barker at or about the same time.

By May 2000 at the latest Mr Barker and Mr Fraser were aware that Mr Davidson was contemplating a flotation. On 5 May Mr Stone of DLA, Leeds, solicitors acting for Mr Fraser and Mr Barker, wrote an open letter setting out the nature of their client’s complaint. They also wrote a “without prejudice” letter saying that it was not their client’s intention to disrupt the flotation “if this can be avoided”. It stated that, if it came to it, their clients could and would compel a return of the patents by recourse to litigation, but that they would prefer to compromise “if they can be guaranteed a fair return on their investment”.

On 10 May 2000 DLA wrote to Mr Warburton referring to two telephone conversations which had taken place the day before. The letter was marked without prejudice and subject to contract. The pertinent portions of the letter were as follows, and the emphases are mine:

It is accepted that “Easysleeve” was a misnomer for “Polysleeve”. So Mr Barker was asking for two elements: compensation for his share of the patents, and payment for a “– sleeve” deal.

On 1 September 2000 DLA again wrote to Mr Warburton on behalf of Mr Barker. Its relevant portions were as follows and again I emphasise certain passages:-

On 5 September 2000 Mr Warburton replied, and his letter was marked “subject to contract”. He wrote:-

So by September 2000 the outline of the proposed settlement was in place. I write “proposed” settlement because, apart from any potential uncertainties, it was all subject to contract. There can be doubt concerning some of the requirements being sought by Mr Barker and Mr Fraser. The settlement, which presupposed a successful flotation, had to be global: not only Mr John Barker, but also Mr and Mrs Fraser and Dr Wakelin had to be parties. Those parties were to recoup their investments (including Mr Barker’s investment of £28,000) plus interest. It was an integral part of the settlement that Mr Barker was to receive a principal sum of £528,000: £28,000 for his investment and £500,000 for the intellectual property and other assets of Polysleeve: the Polysleeve deal, as I have called it, was sought as a condition for the overall settlement and was to be part thereof. There can be no doubt about it.

There then follows a hiatus in the correspondence. We know that Oystertec was successfully floated in mid-February 2001. It is alleged that, despite what I have written in the preceding paragraph, there was an oral agreement at some unspecified date in January according to which the “Polysleeve” deal somehow dropped out of the overall settlement and became a free-standing issue. The allegation largely rests on the following passages in the witness statement of Mr Warburton:

It will be noticed that we are told nothing about how the supposed settlement was reached: whether in writing (and there is no such document) or orally: if orally, whether it was a personal meeting (and, if so, where, and who was present) or on the telephone; what was said; and when. See paragraph 36 of this judgement. The suggestion that there was an oral agreement on some unspecified date in January 2001 had to be left to the speech of Mr Platts-Mills QC who was in the position of trying to make bricks without straw.

Furthermore the above-italicised passages fly in the face of the exchange of letters between Mr Stone of DLA and Mr Warburton himself of 1st and 5th September 2000, not to mention the letter of 10th May, portions of which letters I have quoted above. My recollection is that those letters were produced to the court after Mr Warburton had made his witness statement. Mr Warburton did not make a further witness statement offering to reconcile what he had already said with the contemporary documents.

The matter does not end there. If one goes further into the correspondence one sees, after the date of the flotation, a fax from Mr Warburton to DLA dated 5 March 2001 asking DLA to agree daily interest rates pertinent to the settlement. It continues:

The last sentence is, of course, impossible to reconcile with the proposition that there had already been a binding settlement agreement – in January.

On 9 March 2001 we have a fax from DLA to Mr Warburton. The first sentence reads:

Other passages in the letter are inconsistent with a settlement already having been reached. I quote phrases at random: “pending the final settlement being reached”; “Once a settlement has been reached”. Far from Mr Warburton replying that a settlement had already been reached, he said (in a letter of 12 March):-

After referring to certain papers in the possession of Mr Fraser relating to the companies of which he was a director, Mr Warburton added:

It is plain that neither of the parties’ solicitors were under the impression that there was already a settlement, in January 2001 or at any other time. It is hardly worth wearying the reader any further, so I shall bring this narrative to a close. On 16 March 2001 DLA wrote (subject to contract) dealing with further details which would have to be agreed to achieve the settlement. There was a series of chasing letters to which there were scarcely any substantive replies and so Mr Barker was demanding a meeting. On 4 May 2001 DLA wrote to Mr Warburton as follows:

Mr Warburton did not reply along the lines of “What do you mean? We already have a contractually binding position and have had since January. And your client has no right to tie the Polysleeve deal to the other settlements: they are different issues”. Instead he asked DLA to be patient. Eventually the correspondence terminated as follows (fax from Mr Warburton to DLA of 22 May 2001):-

I suspect that once the flotation had safely gone ahead Mr Davidson must have supposed that the Claimants had lost most of their bargaining power, so why should he worry? Be that as it may, I am entirely satisfied that there was no accord and satisfaction in January 2001 or at any other time and I deprecate the time and money that has been wasted on this issue. How Mr Warburton came to make his witness statement must be a matter of grave concern. Stretching charity to the utmost, he must have done so without reviewing the correspondence and while having a very poor recollection of it. Whatever the explanation, his evidence must be classified as worthless.

LACHES AND ACQUIESCENCE.

On 5 May 2000 DLA acting for Mr Barker and Mr Fraser wrote an open letter to Mr Warburton in his capacity as solicitor to Paul Davidson asserting that both the Easyrad Insolvency Agreement and the Easyrad Assignment were invalid and that their clients were in a strong position to take steps to ensure that Patent was returned to Easyrad Limited. That was nearly 9 months before the flotation of Oystertec. The letter did not refer to Oystertec by its then name but it did complain that “your clients have alleged that they are now entitled to represent those patents as being the lawful property of the flotation vehicle”.

As we have seen, Mr Warburton’s firm acted as solicitors to Mr Davidson during the settlement negotiations, and the Oystertec prospectus records that it had charged the Company £89,859 for legal services in the 12 months prior to the date of the document.

On 6 February 2001, that is, not long before the flotation, there was a board meeting of Oystertec which was attended by Mr Warburton. Amongst those also present were Mr Davidson and Mr Binney. As recorded in the minutes, the chief purpose of the meeting was to consider the preparation of the prospectus: see paragraphs 6 and 7. Those present were reminded that those responsible for the prospectus – and that was stated to include the Directors – were liable to pay compensation to any person who acquired shares and who suffered loss “as a result of any untrue or misleading statement in the [prospectus] or the omission from it of any material information”. The meeting considered a draft in which it was stated that so far as the Directors were aware there were no legal proceedings threatened against the Company. The minutes also record that the Acquisition Agreement (by which the Patent was to be acquired from Mr Davidson) was “carefully considered”.

Nowhere do those minutes record that Mr Warburton or Mr Davidson notified the directors that there had been a solicitors’ letter averring that the Patent belonged to Easyrad Limited, or anything of the sort.

It is the evidence of Mr Dwek (formerly chief executive of Oystertec plc) and Mr Howard Baker (since January 2000 a director) that prior to the flotation neither Mr Paul Davidson nor anyone else warned them that the Frasers were claiming that the Patent belonged to Easyrad Limited. I shall therefore assume for the purposes of this summary judgement application that the directors who were in charge of the flotation knew nothing about the claim.

If this is true it must be beyond argument that Mr Paul Davidson was in clear breach of his duty as a director of Oystertec; and the silence of his solicitor Mr Warburton must have been remarkable. It must have been the more remarkable seeing that his firm was one of the most reputable in the country.

I have held that because the Claimants chose to negotiate for financial compensation and allowed the flotation to go ahead on the basis that Oystertec plc could be treated as the owner of the Patent it is now too late for them to assert a proprietary claim to that Patent on behalf of Easyrad Limited. Mr John Baldwin QC and Mr Philip Marshall QC on behalf of Oystertec contend that I should go further. They say that the Claimants behaved in such a way that Easyrad Limited ought not to receive any financial compensation either. Or, at any rate, that it is arguable.

They contend that the Claimants delayed in making their claim in the knowledge that Oystertec was going to be floated and was going to be represented as the unfettered owner of the Patent. It is said that they did so because they did not want to upset the flotation, the ultimate source of the financial compensation they were hoping to receive from Mr Paul Davidson. Counsel for Oystertec go so far as to allege that the Claimants were in a criminal conspiracy with Mr Davidson to mislead the investing public and so their claim should fail because they have unclean hands.

It is the evidence of Mr Fraser and Mr Stone his solicitor that they assumed that Mr Paul Davidson and Mr Warburton had indeed told the other directors about the claim. Mr Stone in particular says that he thought that Mr Warburton was acting not only for Mr Davidson but for the flotation vehicle. (He points out that Mr Warburton certainly charged it a lot by way of fees.) It is interesting that Mr Binney, in paragraph 3 of his third witness statement, referring to the correspondence of May 2000, says: “Mr Warburton acted for the second Defendant and also for the First Defendant”.

That Mr Fraser, Mr Barker and Mr Stone their solicitor were parties to a conspiracy to deceive the investing public is, I suppose, a feasible hypothesis, in the sense that it is not actually inconsistent with any known independent facts. It is also feasible that Dr W. G. Grace could have been Jack the Ripper. But neither hypothesis is supported by a shred of evidence.

The Oystertec prospectus was not available to Mr Fraser, Mr Barker or Mr Stone before it was issued. (Incidentally, it was not issued to the general public but to chosen institutional investors). There is nothing to show that they were aware or had suspected that it would fail to disclose their claim. There is nothing to show that they were aware or had suspected that Mr Davidson, advised as he must have been by Mr Warburton – a partner in a premier firm of solicitors – would omit to inform the other directors of Oystertec.

On the contrary, it seems to me that it would scarcely have been foreseeable. Failure to make full and frank disclosure would expose Mr Davidson to a risk of serious liability, criminal or civil, if anything went wrong. What is truly remarkable in retrospect is that Mr Davidson should have elected to run that risk and that Mr Warburton should have allowed him to remain silent at the board meeting of 6 February 2001 and elsewhere, indeed possibly exposing himself to criminal liability of his own.

Furthermore it is simply not necessary to invent any such hypothesis. It would have been perfectly possible for Mr Fraser and Mr Barker to profit from the proceeds of the flotation even though every single director of Oystertec well knew of their claim. Why should that knowledge have prevented the negotiation of a settlement? And if there had been a settlement, what would have prevented a flotation? If, as is clear from the correspondence, they were willing to give up their shares in Easyrad for a global compensation in the region of £715,000, they could have struck the deal with Mr Paul Davidson before the flotation, as originally intended, and I see absolutely nothing at all to suggest that they were intending to be better off by waiting until after. On the contrary the correspondence shows that they were trying to settle on the same general terms as before. Still further, it was a matter of public record that Dr Wakelin’s company had actually sued Mr Davidson in respect of the patents yet this did not prevent Dr Wakelin from achieving a settlement with him. What was there to stop Mr Fraser from “doing a Wakelin”?

I regard the suggestion that Mr Barker, Mr Fraser and Mr Stone were in a conspiracy with Mr Davidson and Mr Warburton as fanciful. It should not have been made. The evidence of Mr Fraser and Mr Stone is credible on its face and there is no evidence – such as to satisfy the legal requirement of some evidence – to contradict it. To allow the case to go to trial on this point on the basis that something might turn up would be Micawberism of the worst sort.

I believe that in order to hold that there is a good defence of laches or acquiescence it is necessary to find that the claim is unconscionable. I hold that it is not arguable that the mere bringing of the Claimants’ financial claim against Oystertec plc is unconscionable in the circumstances.

But that is not necessarily the end of the story. It seems to me that the result may conceivably depend on the quantum of the claim. Suppose it were afterwards established that the Patent is worth £30 million and that, absurdly, the Claimants should demand that Easyrad Limited receive compensation for the loss of its Patent to the tune of £30 million. Although I do not have to decide that now, it seems to me that such a claim would indeed be unconscionable, and would be barred by laches or acquiescence. I think so for the following reasons.

As I understand it, the proper financial claim against Oystertec is not one for common law damages. Although Easyrad Limited has been deprived of the Patent the true analogy is not with the tort of wrongful interference with goods. The proper claim is for equitable compensation. Or (what comes to the same thing) a refusal of the declaration of ownership which is sought in the Particulars of Claim on condition that just compensation be paid to Easyrad Limited. See paragraphs 62-64 of this judgement. But it may not be just or equitable to award compensation in such a large amount as retrospectively and materially to falsify the assumed basis of the flotation. It may not be just or equitable because to receive such compensation would be to partake of unjust enrichment at the expense of innocent investors.

In contrast, if the amount of the compensation were more closely related to what readers of the prospectus would have anticipated would be payable by Oystertec plc to Mr Davidson, the claim would bear a very different aspect.

But I stress that these are not matters to be evaluated now, but on an inquiry as to the amount of the compensation that ought to be paid.

Mr Davidson owns the majority shareholding in Easyrad Limited. It was contended for Oystertec that it would be unjust to order it to pay compensation to Easyrad because that would be to put money into the pocket of Mr Davidson, the wrongdoer. But I think it is not beyond the wit of mankind to devise suitable means that address that problem.

DAMAGES FOR BREACH OF FIDUCIARY DUTY.

Miss Fiona Clark, who appeared for Mr Binney, rightly pointed out that the only claim she had to deal with which was within the scope of the application for summary judgement was Mr Binney’s alleged breach of fiduciary duty in executing the Easyrad Assignment. He may or may not have been in breach of his fiduciary duty by previously executing the Easyrad Insolvency Agreement, but that is not a claim that is before me now.

Miss Clark further pointed out that, unlike the case of Mr Davidson, there is no evidence that, in executing the Easyrad Assignment, Mr Binney was seeking to make any personal profit. Further, in order to succeed in a claim for breach of fiduciary duty as a director it must be shown, to the standard required for summary judgement, either that Mr Binney was acting dishonestly or that no reasonable director in his position could have believed the transaction was in the best interests of the company. For present purposes I accept that that is the law.

Miss Clark submitted that in the absence of cross-examination I should accept Mr Binney’s evidence for present purposes: he thought the Easyrad Insolvency Agreement was valid. It should not be hard to accept this anyway, she said, seeing that even the court has had difficulty with the law on this point. He also thought the Easyrad Assignment was in the best interests of the company, said Miss Clark, because he thought that no more investment would be forthcoming for Easyrad Limited. Hence Mr Binney could have thought that to dispose of the Patent for the cost of the Patent Office and patent agency fees (which at least was some money) was indeed in the best interests of the company.

I have some difficulty with parts of those submissions. It is a matter of documentary record that on 23 October 1998 – the day after the Easyrad Assignment – Mr Binney attended a meeting with executives from a company called Delta Plumbing. The purpose of the meeting was to explore the possibility of Delta being licensed to exploit the Patent. With a frankness which only served to add force to the rest of her advocacy Miss Clark admitted that she was quite unable to explain why Mr Binney should have been attending that meeting and negotiating potential royalties for the Patent when he, Mr Binney, had only the previous day signed an agreement purporting to deprive Easyrad Limited of that self-same Patent.

In the light of that admission, which was inevitable, only one inference seems possible. At the meeting Mr Binney was not really representing the interests of Easyrad Limited, the company, at all. He was not supposing that it was Easyrad Limited which might eventually be licensing the Patent to Delta Plumbing.

The minutes of the meeting record that, while Delta was resolutely opposed to providing any cash up front, the company was optimistic about the invention and was willing to contemplate the payment of very substantial running royalties – far in excess of the book value of the Patent, let alone the Patent Office and patent agency fees.

But I accept Miss Clark’s other point: that for the purposes of summary judgement I must take it that Mr Binney genuinely believed that the Easyrad Insolvency Agreement was valid.

Accordingly, she said, Mr Binney was not in breach of fiduciary duty to Easyrad Limited because the terms of the document gave him no freedom of action. Once Mr Davidson had called for the assignment of the Patent he, Mr Binney, believed he had no choice. He had no option but to assign the Patent to Mr Davidson for the consideration defined in that document. In any case, the Easyrad Insolvency Agreement according to its tenor did not require the assignment to be signed by the company secretary: if Mr Binney had refused Mr Davidson could have signed it himself.

I therefore conclude that the claim against Mr Binney for damages for breach of fiduciary duty for executing the Easyrad Assignment fails for the purposes of summary judgement.

Miss Clark also contended that the Claimants, by electing to go the “compensation” route at about the time of the flotation, were affirming the Easyrad Assignment. Thus it would not be conscionable for them to resile from that election now, because they would be unjustly enriched. I do not understand this submission. The argument may demonstrate that Easyrad Limited should not receive such compensation as would amount to unjust enrichment; but not that it should receive no compensation at all.

The claim for breach of fiduciary duty against Mr Davidson has a very different countenance. Unlike Mr Binney, he cannot contend that he was an involuntary actor, bound to give effect to the Easyrad Insolvency Agreement. It was he who chose to demand the execution of the Easyrad Assignment. It was he who somehow came up with the purchase price (the cost of the Patent Office and patent agency fees). In my judgement it is unarguable that Mr Davidson considered that he was acting in the best interests of Easyrad Limited. Such a defence would be fanciful.

It was said that the Patent was worthless in the hands of Easyrad because its directors were at a deadlock; hence no more investment could be forthcoming; hence the company had no prospect of profitable trading; and, therefore, a reasonable director might have thought the Easyrad Assignment was in the best interests of the company. I am prepared to assume the premises of that argument but not its conclusion.

If those things were so, the proper course was not to strip the Patent out of the company for the potential enrichment of Mr Paul Davidson and whatever backers he may have had – leaving the company as an empty shell. The proper course would have been to put the company into liquidation. The asset could then have been offered fairly at the best price that could be got from whoever might have been interested. Mr Davidson was himself interested in acquiring the Patent for a consideration at least equal to patent fees already incurred, else why did he bother? That consideration was arbitrary and there was no rational basis for a belief that it was impossible for it to have fetched more. What Mr Davidson did was to deprive the company or its liquidator of the business opportunity of finding a better offer. At the very best it was of no benefit to Easyrad Limited. In my judgement no reasonable director could have believed the transaction to be in the best interests of the company and the contrary is unarguable.

CONCLUSION.

The claim for equitable financial compensation succeeds against Oystertec plc. The claim for damages for breach of fiduciary duty succeeds at this stage against Mr Paul Davidson, but not against Mr Binney. I shall hear counsel on costs and ancillary relief. I have already intimated that I am minded to say that whoever wants to appeal can have permission to do so, and this has not been opposed by any counsel. Time to appeal is extended until the hearing.

This case has been made harder than it needed to be, first because the papers are not arranged in any particularly logical order – like Topsy, they have just growed – and secondly because too many diverse points have been taken. If this case is taken to appeal, considerable zeal should be devoted to addressing those deficiencies. It is not only what the practice requires, it is good advocacy to boot. That said, I am grateful to counsel for the excellence of their arguments.