Fraser & Ors v Oystertec Plc & Ors [2004] EWHC 2225 (Ch)

[2004] EWHC 2225 (Ch)Case No HC0201138
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 06/10/2004
Before
THE HONOURABLE MR JUSTICE LIGHTMAN
Between
MICHAEL BRUCE FRASERClaimantsAGATHA SHUK-YEE WONG-FRASERClaimantDAVIDSON TOOLS LIMITEDClaimant(4) SANKEY PRODUCT DEVELOPMENTS LIMITEDClaimantOYSTERTEC PLCDefendantsPAUL ANTHONY DAVIDSONDefendantADRIAN PHILIP BINNEYDefendant(4) EASYRAD LIMITEDDefendant
Mr Adrian Sutcliffe QC (instructed by DLA LLP 3 Noble Street, London EC2V 7EE) for ClaimantsMr John Baldwin QC and Mr Philip Marshall QC (instructed by instructed by Berg & Co, Solicitors, Scottish Mutual House, 35 Peter Street, Manchester M2) for First DefendantMs Fiona Clark (instructed by Lockett Loveday McMahon, Arkwright House, Manchester M3 2LF) for Third DefendantMr Stephen Phillips QC (instructed by Pannone & Partners, 123 Deansgate, Manchester M3 2BU) for Mr WarburtonHearing Hearing dates: 27 th September – 4 th October 2004
Judgment

INTRODUCTION

[1]These proceedings relate to certain patents (“the Patents”) which were vested in three companies namely the Fourth Defendant Easyrad Limited (“Easyrad”), the Third Claimant Davidson Tools Limited (“Davidson”) and the Fourth Claimant Sankey Product Development Limited (“Sankey”). (I shall refer to Easyrad, Davidson and Sankey together as “the Claimants”.) None of the Claimants is trading. These proceedings are financed by loans from a backer. It may be inferred that none of the Claimants have any assets or any assets of any value other than the claims in these proceedings.[2]On the 20th October 1998, two directors of the Claimants, the Second Defendant Paul Davidson (“Mr Davidson”) and the Third Defendant Adrian Binney (“Mr Binney”), transferred or purported to transfer the Patents from the Claimants to Mr Davidson. On the 5th May 2000 the Claimants’ solicitors DLA wrote a letter (“the DLA Letter”) to Mr Warburton of Addleshaw Booth, solicitors for Mr Davidson, challenging the validity of the transfer of the Patents to Mr Davidson and threatened proceedings. On the 6th February 2001 pursuant to a sale agreement (“the Oystertec Agreement”) for a deferred consideration of £3 million Mr Davidson transferred or purported to transfer the Patents to Oystertec. Foremost amongst the Patents transferred or purported to be transferred was what is now called “the Oystertec Converter” owned by Easyrad. The transfer to Oystertec was an essential preliminary to the subsequent successful flotation of Oystertec in February 2001. The prospectus issued on the 14th February 2001 made plain that ownership by Oystertec of the Oystertec Converter was central to the flotation. The flotation was highly successful and Oystertec since that date has (no doubt in large part through exploitation, or on the back of ownerships, of the Patents) become a substantial profitable company.[3]On the 1st May 2001, the Claimants commenced these proceedings. Easyrad at that date was substantially owned and controlled by Mr Davidson and accordingly it was necessary to obtain the permission of the court for the First and Second Claimants to bring derivative proceedings on behalf of Easyrad. Permission to bring this action as then and presently pleaded was granted by Pumfrey J on the 27th July 2002. In these proceedings the Claimants claim against Oystertec the return of the Patents and against Mr Davidson and Mr Binney damages for breach of fiduciary duty. The claim to the return of the Patents is made on two alternative bases. The first is that Mr Binney and Mr Davidson had no authority to transfer the Patents to Mr Davidson and accordingly Mr Davidson conferred no title on Oystertec. On this basis the Claimants claim the return of the Patents as owners of them. The second is that, if Mr Binney and Mr Davidson did have authority to transfer the Patents to Mr Davidson, in transferring the Patents they acted in breach of fiduciary duty to the Claimants, that accordingly Mr Davidson obtained title to them as trustee for the Claimants, that Oystertec acquired title to the Patents from Mr Davidson with notice of the trust and that accordingly Oystertec likewise held the Patents as trustee for the Claimants.[4]Easyrad applied for summary judgment against Oystertec in respect of the Oystertec Converter and against Mr Davidson and Mr Binney for damages for breach of fiduciary duty. These applications were the subject of two judgments of Mr Peter Prescott QC (“Mr Prescott”) dated the 8th September and the 7th November 2003. By his order dated the 4th December 2003, he declared that Mr Binney and Mr Davidson had no authority from Easyrad to transfer the Oystertec Converter to Mr Davidson and accordingly Mr Davidson had no title to transfer to Oystertec and he awarded Easyrad equitable compensation. Nonetheless by reason of laches and delay on the part of Easyrad he refused to make the requested declaration of ownership of the Oystertec Converter in favour of Easyrad so long as Oystertec paid the equitable compensation which he awarded in respect of the wrongful transfer to Oystertec of the patent. He also awarded summary judgment against Mr Davidson for breach of fiduciary duty but declined to do so against Mr Binney.[5]Oystertec in a Part 20 claim applied for summary judgment against Mr Davidson for breach of warranty in the Oystertec Agreement. The warranty was to the effect that Mr Davidson was the owner of the Patents and that there were no adverse claims. The Oystertec Agreement placed a cap on the damages that could be awarded for breach of warranty, but provided that there should be no cap in case of fraud or wilful or reckless non-disclosure. Mr Prescott gave Oystertec summary judgment as asked and upheld the contention of Oystertec that the cap on damages was inapplicable, not because of any fraud, but because of Mr Davidson’s wilful or reckless non-disclosure of the adverse claim by Easyrad. On the 5th August 2004 Oystertec obtained the appointment of a receiver by way of equitable execution of Mr Davidson’s shares in Easyrad. By reason of the final judgments granted against him, there is no live issue at the trial between the Claimants or Oystertec and Mr Davidson.[6]Oystertec decided to re-transfer to Easyrad the Oystertec Converter. The completion of this re-transfer (as of the other re-transfer which Oystertec has offered to make) has yet to take place because (leave aside agreement as to the terms of the transfer which should occasion no problem) the board of directors of Easyrad refused for undisclosed reasons to authorise any such re-transfer. It is common ground that, beyond the retransfer of the Oystertec Converter, Easyrad remains entitled to equitable compensation awarded by Mr Prescott in respect of the wrongful purported transfer of that patent to Mr Davidson, the purported transfer by Mr Davidson of that patent to Oystertec and the exploitation of the patent by Oystertec (giving credit for the re-transfer when made) and that Easyrad has no other claim in this regard against Oystertec.[7]On the 18th June 2004 Oystertec offered voluntarily to return all patents claimed by Easyrad and DTL and amended its Defence to reflect this position on the 23rd July 2004. Oystertec maintains its claim to retain the Sankey Patents.[8]The outstanding issues between the Claimants and Oystertec on the pleadings as they stand are whether Sankey is entitled to the re-transfer of the Sankey Patents and whether Davidson and Sankey are entitled to equitable compensation (or perhaps other relief) beyond the retransfer of their patents. The outstanding issue between the Claimants and Mr Binney is whether the Claimants are entitled to damages for breach of fiduciary duty against Mr Binney.[9]When Mr Prescott made his order on the application for summary judgment on the 4th December 2003 he gave directions for the further conduct of the proceedings. On the 12th February 2004 Lewison J after a case management conference gave detailed directions for trial and a trial estimated to last 8-10 days has been fixed for the 15th November 2004. There has been some slippage, but it is common ground (as it is plain) that the action as presently pleaded will be ready for trial on the 15th November 2004. The trial of the action on that date is of the greatest importance most particularly to Oystertec, for its business interests require that the position in respect of this action (now some two years old) be finally resolved. The uncertainty and the concomitant adverse publicity in the financial press pending resolution are highly damaging.

THE APPLICATION TO AMEND

[10]By the application dated the 16th August 2004 now before me the Claimants applied for permission to join Mr Warburton as an additional defendant and make what are described as consequential amendments.[11]The application to join Mr Warburton is a very belated application. As long ago as the 24th May 2001 the Claimants wrote to Mr Warburton threatening a claim against him, but for no apparent reason (let alone a good reason) Mr Warburton was not joined as a defendant and no application for his joinder was made until this very late date. No explanation (certainly no meaningful explanation) has been given for the delay. The application as made sought to join him as party to a conspiracy together with Mr Davidson, Mr Binney and Oystertec to injure the Claimants. (As I shall recount in more detail in a moment) on the first and second days of the hearing the Claimants put before the court successive versions of a proposed amended pleading. On the third day of the hearing the Claimants abandoned the claim in conspiracy against Mr Warburton. In its place in a new draft pleading the Claimants sought to allege that Mr Warburton dishonestly assisted Mr Davidson to commit breaches of duty to the Claimants.[12]It is sufficient to say in respect of this application that Mr Warburton by his counsel properly submitted that he could not possibly be ready to meet and deal with the very serious allegations against him on the trial date and accordingly, if he was joined as a defendant, the trial date would have to go.[13]The application to make consequential amendments was in fact an application to make, not consequential amendments, but a far-reaching amendment of the most serious kind. The draft amendments which accompanied the application were essentially twofold. The first amendment was to add additional grounds supporting the allegation that Oystertec purchased the Patents with notice of the trusteeship of them of Mr Davidson for the Claimants. In particular the amended pleading pleads that notice is to be imputed through Mr Warburton as Oystertec’s solicitor and through its directors Mr Davidson and Mr Binney. The first amendment occasions no real difficulty. The issue whether such imputation is justifiable in law on the facts is a triable issue and the issue can conveniently and finally be determined at the trial and (subject only to the Claimants providing further information as requested by counsel on behalf of Mr Binney) I think that this amendment ought to be allowed. I should not seek to try the issue summarily on this application.[14]The second amendment was to include a claim for conspiracy against Mr Warburton, Mr Binney, Mr Davidson and Oystertec not to disclose to Oystertec’s confidential advisers on the impending flotation the challenge previously made by the Claimants to the validity of the purported transfer of the Patents by the Claimants to Mr Davidson and accordingly to Mr Davidson’s title.[15]The draft pleading (as I have already said) was deficient and, when this was pointed out at the first day of the hearing, the Claimants on the second day put forward an amended fuller draft pleading of the alleged conspiracy. This claim of conspiracy was however manifestly unmaintainable for a variety of reasons. It is sufficient to say that, whilst it could be maintained that by any such non-disclosure the Defendants intended to injure the investors on the flotation, it was not arguable or indeed conceivable that by such concealment they intended to injure the Claimants. I made my provisional view in this regard clear to Mr Sutcliffe, counsel for the Claimants. He agreed to consider it overnight and on the third day of the hearing he abandoned the claim in conspiracy.[16]The same morning Mr Sutcliffe put before me a fresh draft setting out a further alternative cause of action against Oystertec, namely that Oystertec was liable as constructive trustee in respect of its knowing receipt of the Patents, having acquired them with actual knowledge that they had been obtained, and that they were held, by Mr Davidson as constructive trustee for the Claimants.[17]It was common ground that (1): if Mr Warburton was joined as a defendant, the trial date would inevitably be lost and, if the application for joinder was refused, it was open to the Claimants to maintain the claim against him in separate proceedings; and (2) the action could still be ready for trial on the 15th November 2004 if the application for joinder of Mr Warburton was refused but the application to amend to include the claim of knowing receipt against Oystertec was allowed to be added by way of amendment. It was clear, and indeed (I think) common ground that:(1) the trial date should not be vacated;(2) the application to join Mr Warburton should be refused and dismissed with costs; and(3) the issue whether the amendment to include the claim in knowing receipt should be argued and determined. The late receipt of the proposed amendment however rendered it impracticable to argue the issue without affording Oystertec and Mr Binney the opportunity to consider fully the new pleading and its implications. Accordingly the hearing was adjourned (with directions as to lodging skeleton argument) until Monday the 4th October 2004.

THE RELEVANT AMENDMENTS

[18]I shall only consider the proposed amendments to which the Defendants took objection. The proposed amendments have a dual purpose. The first is to bolster the alternative proprietary claim against Oystertec, namely that, if Mr Binney and Mr Davidson were authorised to transfer the Patents to Mr Davidson, the transfer was made in breach of their fiduciary duty to the Claimants and that Oystertec acquired legal title to the Patents with notice of Mr Davidson’s trusteeship and accordingly as trustee for the Claimants. The second is to introduce a new cause of action against Oystertec of knowing (or unconscionable) receipt of trust property, namely the Patents.[19]In paragraph 7 of the draft Re-Amended Particulars of Claim the Claimants seek to add two allegations:(1) that before and after Mr Binney’s appointment as a director of Oystertec on the 31st October 2000, the board of Oystertec delegated to him responsibility for matters relating to intellectual property and (in the context of the flotation of Oystertec) due diligence; and(2) that Mr Warburton (a) acted for Oystertec in relation to the proposed flotation between about December 1999 and October 2000 and (b) continued to play an active role in preparation of the flotation from October 2000.[20]As regards the role of Mr Warburton, the position now taken by the Claimants contradicts the previous position taken that Mr Warburton acted only for Mr Davidson. But there is some material before me supporting the contention that Mr Warburton acted for Oystertec as well as Mr Davidson. Mr Binney has signed a witness statement expressly accepting that Mr Warburton acted both for Oystertec and Mr Davidson and Oystertec’s disclosure shows that Mr Warburton’s firm’s corporate department was formally instructed to act for Oystertec on the flotation. Oystertec’s disclosure is not yet complete. Mr Warburton has yet to provide a statement. The documents in evidence on this application in exhibit MEH2 show that the Claimants have a real prospect of establishing that the board of Oystertec delegated to Mr Binney responsibility for matters relating to intellectual property and due diligence and that Mr Warburton acted for Oystertec at the time of receipt of the DLA Letter. I think that I should allow this amendment.[21]In paragraph 40(2) of the draft Re-Amended Particulars of Claim the existing proprietary claim is pleaded out. As originally pleaded it was merely alleged that Oystertec had notice that Mr Davidson held any assignable interest in the subject matter of the Oystertec Assignment on trust for the Claimants. The trust was alleged to arise because Mr Davidson acquired the Patents in breach of his fiduciary duties to the Claimants and Oystertec was bound by the trust because it had notice of the trust through its directors Mr Davidson and Mr Binney. In paragraph 40.2 the Claimants seek to further elaborate the plea of notice. The Claimants plead:(1) that Mr Davidson and Mr Binney knew of the trust because the trust arose as a result of their breaches of fiduciary duty and that, since they were directors of Oystertec, their knowledge was to be imputed to Oystertec; and(2) that Mr Warburton acquired knowledge of the trust when he received the DLA Letter at which time he was acting for Oystertec and Mr Davidson and that his knowledge was to be imputed to Oystertec because he had actual or constructive authority from Oystertec to receive the letter and/or he had a duty to communicate the information contained in it to his client Oystertec and Oystertec had a duty to receive the information.[22]Paragraph 44A pleads the new cause of action of knowing (or unconscionable) receipt of trust property. The basis pleaded for the claim is that Mr Davidson, Mr Binney and/or Mr Warburton knew that Mr Davidson and Mr Binney had removed the Patents from the Claimants in breach of fiduciary duty and that their knowledge is to be imputed to Oystertec because:(1) Mr Davidson and Mr Binney (a) knew of the trust since it arose from breach of their own fiduciary duties; and (b) were two of the directors having management and control of Oystertec in relation to execution of the Oystertec Assignment and were therefore the directing mind and will of Oystertec for the purposes of this transaction. (It is not pleaded and could not sensibly be pleaded that on their own Mr Davidson and Mr Binney were the directing mind and will: the directing mind and will was the board of directors). As Mr Sutcliffe made clear in his submissions he only intended to plead that they were members of the board which was the directing mind. This should be made clearer. The Claimants plead reliance on the board minutes of Oystertec dated the 6th February 2001 as showing that Mr Davidson and Mr Binney were fully involved in discussions relating to the approval of the Oystertec Assignment; and(2) Mr Warburton acquired knowledge of the trust when he received the DLA Letter and his knowledge is to be imputed to Oystertec on the grounds that he had actual or ostensible authority from Oystertec to receive the DLA Letter, that he had a duty to communicate the information contained in the letter to his client Oystertec and that Oystertec had a duty to receive it. The knowledge so imputed (it is pleaded) survived the cesser of Oystertec’s retainer of Mr Warburton as its solicitor in October 2000. The Claimants go on to plead that the knowledge of the trust to be imputed to Oystertec renders it unconscionable for Oystertec to retain the benefit of the Patents and that accordingly Oystertec held them as constructive trustee for the Claimants. Going on beyond this the Claimants plead that Oystertec acted in breach of trust in making use of them and failing and refusing to acknowledge the Claimants’ beneficial entitlement to them, and that this conduct gives rise to a claim for damages for breach of trust or alternatively an account of profits.[23]In view of the adoption and subsequent abandonment of the allegation of conspiracy, the Claimants at my request properly disavowed any allegation at all of dishonesty against Mr Binney and Oystertec and any allegation of dishonesty against Mr Warburton but in his case limited to this action.

RELEVANT PRINCIPLES

[24]I must now turn to the proposed knowing receipt amendments sought by Davidson and Sankey. The position in respect of the amendments sought by Easyrad (to the exclusion of the Oystertec Converter), if permission is given to proceed with the amended derivative claim, should be the same. There are two general guiding principles when exercising the jurisdiction to grant permission to amend under CPR 17.1(2)(b). The first principle is stated by Peter Gibson LJ in Cobbold v. London Borough of Greenwich (9th August 1999 CA) in a passage quoted at note 17.3.5 in Volume 1 of the White Book (p.393):
“The overriding objective [of the CPR] is that the court should deal with cases justly. That includes, so far as practicable, ensuring that each case is dealt with not only expeditiously but also fairly. Amendments in general ought to be allowed so that the real dispute between the parties can be adjudicated upon provided that any prejudice to the other party or parties caused by the amendments can be compensated for in costs, and the public interest in the efficient administration of justice is not significantly harmed.”
[25]The second principle is that the court ought not to give permission to amend if the claim has no real prospect of succeeding, and in particular if the claim is untruthful or fanciful or is unsupported by evidence and is put forward in the hope that something may turn up on disclosure or trial.[26]The very late date of the application for permission to amend would be highly significant if permission to amend necessitated an adjournment of the trial date or otherwise occasioned injustice, but (as I have already said) it is common ground that it will do neither and any prejudice can be met by an appropriate costs order or a condition attached to the order granting permission. The late date of the application does give rise to a particular case management consideration. It is essential that the trial date be maintained and that it should not unnecessarily be put in jeopardy by any outstanding appeal to the Court of Appeal from any decision made on this application. Accordingly where contentious issues are raised which can as well be determined at the impending trial as resolved on this already unduly lengthy application and the determination of an issue on this application will not materially affect the course of the trial but may be by reason of the appeal process put the trial date in jeopardy, I think that the court may exceptionally give limited consideration as to the prospects of success and practically suspend judgment if an issue appears at all arguable and leave resolution of the issues to the trial, in particular in a case such as the present where the trial is only five weeks away.

GROUNDS OF OBJECTION

[27]I turn now to the objections raised to the proposed amendments by Oystertec. Counsel for Mr Binney was neutral on this application, neither supporting nor opposing it. But she had made an oral request to Mr Sutcliffe for certain further information in respect of the amended pleading which Mr Sutcliffe indicated willingness to provide. I indicated that these (and certain other obviously sensible requests) should be submitted in writing and Mr Sutcliffe again expressed his willingness to provide the further information requested.

EASYRAD APPLICATIONS

[28]I begin by considering two objections to the proposed amendments so far as they affect Easyrad and the Easyrad Patents (and most particularly the Oystertec Converter).

(a) Derivative Action

[29]The first objection is that the authority given to bring a derivative action on behalf of Easyrad was given limited to the claim as then and presently pleaded. CPR19.9 regulates derivative claims. The rule requires the claimant in a derivative action after issuing the claim form to apply to the court to continue the claim and not take any other step (save as particularised) except pursuant to the permission of the court. On the application to the court the claim form and the written evidence in support must be provided to the defendant. What the rule contemplates is that the court (in a jurisdiction broadly analogous to that under the Beddoes jurisdiction) will consider whether the company is disabled from pursuing the claim and whether it is in the interests of the company to pursue the claim in question. What is contemplated is not a single authorisation of proceedings entitling the claimant indefinitely to pursue the original further claim without further authority, let alone pursue any further or other claim. Nor is it contemplated (save in the exceptional case when this might be appropriate) that the authority given when the action is begun is to continue without any review until trial. Continued supervision by the court is called for at successive stages in the action (e.g. after closure of pleadings and disclosure) and most particularly if there is a material change of circumstances.[30]The relevant legal principles governing actions in respect of wrongs done to a company are authoritatively stated by Peter Gibson LJ in Barrett v. Duckett [1995] 1 BCLC 243 at 249. In deciding whether to allow a shareholder to bring a derivative action on behalf of a company, the court must determine whether the shareholder is bringing the action in good faith for the benefit of the company for a wrong done to the company for which no other remedy is available.[31]The order of Pumfrey J giving permission to Mr and Mrs Fraser to bring these proceedings was, as contemplated by CPR 19.9 and in accordance with the jurisprudence on derivative actions, limited to the claim as then pleaded. In the circumstances an application to a judge other than the judge having conduct of the action is necessary for permission to prosecute the new cause of action. Though this was pointed out by Mr Baldwin on behalf of Oystertec on the first day of the hearing, on the last day a week later no action had been taken to proceed with any such application. The response of the court to such an application is no foregone conclusion.[32]Reconsideration is in any event required whether permission can or should be continued to prosecute the derivative claim. The whole basis for it was that Mr Davidson by reason of his shareholding could and would frustrate any such proceedings on behalf of Easyrad. But Mr Davidson no longer controls his shares and accordingly (one would think) Easyrad. The shares are now in the power of the receiver appointed by the court and indeed Mr Davidson’s attitude may have changed since final judgment has been obtained against him. There have also been changes in the constitution of the board of directors. Anxious consideration is accordingly required whether the conditions for a derivative action continue to prevail. Even if they do, the court should consider whether a direction should be given that the action continue and accordingly whether Easyrad should continue to assume the full risk as to costs of all the claims made by the Claimants in this action. If the action fails, it is not apparent that Easyrad can have recourse in respect of any liability for the Defendants’ costs to any available asset of the other Claimants; it is not apparent that they have any. Easyrad has already obtained back its patents and has a judgment for equitable compensation and a mediation is in the offing. Any offer to settle will be relevant.[33]I do not think that I can or should give permission to Easyrad to amend until the necessary hurdle of obtaining permission in these derivative proceedings to prosecute the amended claim has been surmounted. Until that permission is obtained, this application is premature. I can at best indicate my attitude toward granting permission to amend if this hurdle is expeditiously surmounted.

(b) Oystertec Converter

[34]In my judgment it is not open to Easyrad to maintain a claim in knowing receipt in respect of the Oystertec Converter for two reasons. The first reason is that Easyrad has already elected by obtaining summary judgment against Easyrad to obtain as its full and final relief in respect of that patent the relief granted by Mr Prescott. It cannot be open to Oystertec to seek now some other form of relief never previously claimed. Mr Sutcliffe has raised the question whether the knowing receipt of the Patents may affect the entitlement to equitable compensation. Nothing I hold in this judgment affects that question which is not before me. It will be before the judge who assesses the equitable compensation. The second reason has more far-reaching implications. As I have already said, the Claimants claim for relief in the action in respect of the Patents as it stands is in the alternative(a) a determination that title never passed to Mr Davidson and accordingly to Oystertec and(b) a determination that title did pass but passed to Mr Davidson and Oystertec as trustees for the Claimants. The proposed new claim of knowing receipts assumes that the Patents passed to Mr Davidson and Oystertec as trustees and seeks to encrust on that trusteeship further “constructive trustee” obligations.[35]In my judgment there can be no claim of knowing receipt if Oystertec never received or held title to the Patents, for in that case there could be no trusteeship at all. The legal and equitable ownership of the Patents at all times remained in the Claimants. The Claimants no doubt have other common law or statutory claims for compensation in respect of Oystertec’s use of the Patents. In the case of the Oystertec Converter Mr Prescott upheld the Claimants’ contention that title to the patent at all times remained in Easyrad and never passed to Oystertec. That and that alone was the basis of his judgment, and it was on that basis that he granted to the Claimants the relief of equitable compensation and (in default of payment) a declaration of Easyrad’s ownership of the patent. No claim to relief in the form of compensation for knowing receipt can now be available.[36]After preparing this judgment and some three hours before the time fixed for its delivery Mr Sutcliffe delivered to me an elaborate skeleton argument making effectively a new case on the issue whether a constructive trustee claim may arise notwithstanding title did not pass. Mr Sutcliffe makes lengthy citation of authority challenging the conclusion which I had expressed as my provisional view at the hearing. It is impractical to examine before giving judgment Mr Sutcliffe’s submissions because of the lateness of receipt and because Mr Sutcliffe has already told me that due to commitments elsewhere he cannot attend the hearing today. Any further delay in giving judgment could jeopardise the trial. In the circumstances, I think it best to rest my decision on the first of the two reasons I have given, and leave it open to the trial judge to determine the correctness or otherwise of Mr Sutcliffe’s submissions if and so far as it arises, not bound by the view which I have expressed.

IMPUTATION OF KNOWLEDGE

[37]The Defendants contend that the proposed amendments rest on the imputation to Oystertec of the knowledge of Mr Davidson and Mr Binney as directors and Mr Warburton as solicitor retained by Oystertec and that it is clear in law that such imputation is legally impermissible.[38]Oystertec submit that the knowledge of Mr Davidson, Mr Warburton and Mr Binney should not be imputed to Oystertec for two reasons. The first is that the knowledge of an agent or the directing mind of the principal should not be attributed to the principal if the agent or directing mind was acting in fraud of his principal. This principle applies equally to the directors of a company (see PCW Syndicates v. PCW Insurers [1996] 1 WLR 1136) and to solicitors (see Halifax Mortgage Services v Stepsky [1996] Ch 1). The second is that the conditions for imputation of knowledge of an agent to his principal are not satisfied in this case.[39]There is in my judgment great force in the submissions of Mr Baldwin and Mr Marshall on behalf of Oystertec that Mr Davidson acted in fraud of Oystertec. There is also force in their submissions that the conditions for attribution of knowledge of Mr Davidson, Mr Binney and Mr Warburton to Oystertec are not satisfied. But after anxious consideration I have concluded that there is sufficient scope for argument on the law and facts that these issues should be left to be determined at the trial where full evidence and full argument will be marshalled and the various parties (and no doubt if he wishes Mr Davidson) can have a full and proper opportunity to explain themselves and their actions. I should add that any limited findings that I might make could embarrass or complicate the further findings required to be made at the trial. Since the issues are to be tried shortly, I do not think that I need or should embarrass the trial judge by expressing any further view on the merits. I am not prepared to hold that the hurdles in the way of the Claimants are insuperable and see no advantage in rehearsing or further examining the rival arguments.[40]CPR 3.13 provides that when the court makes an order it may make it subject to a condition including a condition to pay a sum into court. Since the Claimants do not trade and cannot afford to fight this action without recourse to loans from a backer, it may readily be assumed that the Claimants will be unable to pay any order for costs made against them if this action fails and an adverse order for costs is made against them. The Defendants inform me that there will be (unless the Claimants voluntarily concede security) an application for security for costs, but there is as yet no such application and certainly there is no such application before me. The question raised is whether I should make any order granting leave to add by way of amendment the new “knowing receipt” claim conditional on a payment into court by the Claimants, entirely without prejudice to any subsequent application for security. The new claim has, as I have indicated, in my view limited prospects of success and the addition of the claim will appreciably add to the complexity of the case and the costs of preparation for trial and the costs of the trial itself. In my judgment justice does require that I make the order granting permission conditional on the Claimants securing the likely addition to the costs occasioned by this very late new claim, and a fair figure as it seems to me is payment of £25,000 in respect of the costs of Oystertec and £10,000 in respect of the costs of Mr Binney.

CONCLUSION

[41]I accordingly:(1) allow the uncontested proposed amendments and the amendments to paragraph 7;(2) disallow at this stage any amendment to the claim by Easyrad; and(3) (conditional upon the payment into court of £35,000) I allow the proposed amendments seeking to attribute to Oystertec for purposes of the proprietary and the knowing receipt claim the notice to and knowledge of Mr Davidson, Mr Binney and Mr Warburton. The parties should settle a minute of order giving effect to this judgment.

Cited in 1 later judgment