Wright Hassall LLP v Horton Jr & Anor [2015] EWHC 3716 (QB)

Case No B40BM029[2015] EWHC 3716 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
MERCANTILE COURT
Venue Birmingham Civil Justice Centre, Bull Street, Birmingham B4 6DSDate 22/12/2015
Before
HHJ DAVID COOKE
Between
Wright Hassall LLPClaimantGeorge Shortland Horton Jr (1)DefendantsJane Cowles Horton (2)Defendant
Nigel Jones QC and Gemma Witherington (instructed by BLM Law) for ClaimantsEdward Pepperall QC (instructed by Moore & Tibbits) for DefendantsHearing Hearing date: 2 November 2015
JudgmentApproved Judgment (Revised)HHJ David Cooke:
[1]In this action the claimant solicitors seek payment from the defendants of fees of £12,700, plus interest which to the date of issue would take the total to £16,367. The defendants' principal defence is one of set off of a counterclaim they make for negligence in which they originally sought damages of over £2.8m, now reduced in their re-amended Defence and Counterclaim to £2.57m. This is the claimant's application to strike out that defence and counterclaim pursuant to CPR 3.4 on the basis that the pleading discloses no reasonable grounds for defending the claim or bringing any counterclaim against the claimant, or alternatively for summary judgment pursuant to CPR 24 on the basis that the counterclaim has no real prospect of success.[2]It is common ground that under CPR 3.4 the focus is on the pleading and whether the facts pleaded fail to show any defence or counterclaim recognisable in law, but that under CPR 24 the court must consider also whether the defendant has any real prospect of establishing the necessary facts by evidence at trial. A real prospect means one which is realistic as opposed to one which is merely "fanciful"; see Swain v Hillman [2001] 1 All ER 91. For the purpose of this application, therefore, the facts are to be taken as pleaded or accepted by the defendants, save to the extent that I find the prospect of establishing those pleaded facts to be fanciful.

Factual background

[3]In order to explain the submissions made, I summarise the relevant factual background, as so pleaded or accepted unless stated otherwise, as follows: i) At some point prior to 2004, Mr Horton invented a novel computer desk intended particularly for use in the education and public sectors. ii) On 14 January, 2004, the defendants incorporated a company called Adeptias Ltd ("Adeptias") to exploit the commercial opportunities presented by the invention of the desk. Adeptias began to manufacture and sell the desks. It also made applications in June 2004 for the grant of a UK patent and in June 2005 for an international patent in respect of the invention. It is common ground that the right to pursue the applications is separate from the ownership of the invention, and that Adeptias was entitled to make and pursue the applications whether or not it was the owner of the invention. However, no patent could ultimately be granted on the applications unless, at the date of grant, the applicant was also the owner of the rights to the invention. The UK application was terminated on 2 November, 2005 before any grant had been made. The International application continued. iii) On 4 December, 2006, Adeptias entered into an assignment ("the joint assignment") by which it purported to assign to Mr and Mrs Horton jointly all the rights to the application and the invention. On 27 December, 2006, Mr Horton (alone) made an application for a patent in the United States. In January 2007, Adeptias made an application for a European patent. iv) On 21 March, 2007, Mr Horton (alone) entered into a further assignment ("the sole assignment") by which he purported to assign all the rights to the invention back to Adeptias, together with the rights to all applications based on that invention. The purpose of this assignment is pleaded to be so that Adeptias could make its own application for a patent in the United States. v) In July 2008, the defendants agreed terms with Miss Kantor and Mr and Mrs Godden (together "the Investors") for them to invest money in Adeptias. The investment was to take the form of a loan of £140,000, intended subsequently to be converted into a 25% equity shareholding. The Investors agreed to provide or introduce £100,000 of further equity funding. The defendants entered into a personal guarantee for repayment of the £140,000 loan, which was advanced by payments of £80,000 made in July and £60,000 in August 2008. vi) On 8 August, 2008, Adeptias entered into a further assignment ("the CJC assignment") by which it purported to assign the rights to the invention and all applications based on it to a company called CJC Legacy Limited ("CJC"), which was owned and controlled by the defendants or their family. It is the defendants' position that the Investors were aware of and agreed to this assignment. vii) The Investors did not provide or secure any further equity funding. On 14 November, 2008, they refused to convert their loan to equity and insisted that steps be taken with a view to putting Adeptias into administration. viii) On 27 November 2008, Mrs Horton incorporated a company called Sigma Desks Limited ("Sigma") (bundle p90) with a view to it acting as a vehicle to purchase the assets of Adeptias from the intended administrators. The incorporation documents show that it had an authorised capital of 1000 shares of £1 each, of which 100 shares were taken by the subscribers (p97). 65 were subscribed by Mrs Horton and the remainder by Mr and Mrs Horton's two sons and a family trust. Mrs Horton and her son Nicholas were appointed directors. ix) The following day, Mr and Mrs Horton orally agreed terms with the Investors with a view to Sigma pursuing the asset purchase. The pleaded terms are that the Investors were to own 60% of the shares in Sigma with the defendants retaining 40%. In fact it appears from the documents that the arrangements were intended to be that the Investors would be shown as the owners of all the shares so that the prepack sale would appear to be to a company owned by them and not the defendants, but that there would be a private arrangement for the Investors to hold 40% of the shares on trust for the defendants (see for instance the letter dated 9 February 2009 at p220 by which Mrs Horton commented on a letter the administrators were to send to creditors, which included:
"George and I are not shareholders of Sigma Desks. The shareholders and directors are Kazia Kantor (76%) and Ian Godden (24%)"). x) The Investors agreed in return that the personal guarantee for the £140,000 loan would be waived. xi) In pursuance of this arrangement, on 4 December, 2008 Mrs Horton in her capacity as a director of Sigma completed and filed at Companies House a form 88(2) (ie a return of allotment of shares) apparently recording the allotment of 100 shares in Sigma to the original subscribers in the same proportions as the shares taken on incorporation. It is the defendants' case, and Mrs Horton's evidence, that she did so thinking that by completing this form she was in fact transferring 60% of the shares to the Investors. Quite how she came to this belief is not explained in the evidence. At the hearing, Mr Pepperall said that she thought that she was "returning" the original shares to the company so that they could be reissued in the proportions agreed. This was not consistent with his client's evidence to date, since it would imply some further step was required to vest shares in the transferees. xii) On the same date Mrs Horton and Nicholas resigned as directors of Sigma and Miss Kantor was appointed as a director. These changes were notified to Companies House on forms filed by Mrs Horton. A form recording Mr. Godden's appointment as a director was signed by Mrs Horton, but not apparently submitted to Companies House because Mr. Godden had not signed it. xiii) There was no other formal step taken towards implementing these arrangements. There was no recorded meeting of directors or shareholders. No share transfer forms or certificates were executed. The register of members had never been made up, and no entries were now made to show the intended shareholdings. xiv) On 5 December 2008 administrators were appointed and completed a prepack sale of Adeptias's assets to Sigma. xv) Shortly thereafter the defendants fell out with the Investors. The Investors took steps, purportedly acting as the sole directors of Sigma, to reduce the defendants' remuneration, terminate their contracts of employment (alternatively for services) and exclude them from the offices used by Sigma. Those offices were premises at Spartan Close in Warwick leased by Midland Assured Homes Limited ("
Midland") to Adeptias, the lease being guaranteed by the defendants. xvi) On 27 February 2009, Miss Kantor and Mr. Godden held a meeting (the minutes (p226) do not say in what capacity) at which they stated that having inspected the "statutory books" the registration of shareholders on incorporation (27 November 2008) was a mistake as no shares had been registered or paid for on that date and that the form 88(2) filed on 4 December 2008 was "incorrect" as it had been intended to notify a change in share ownership and not a further allotment. They stated that they "agreed" that the shares allotted on incorporation should be "cancelled" and 100 new shares issued to themselves. Miss Kantor in her capacity as a director of Sigma then filed at Companies House what was said to be an amended form 88(2) purportedly recording the allotment of 100 shares in Sigma as to 76 to herself and 24 to Mr Godden. It is not stated whether they then completed the register of members to show that shareholding, but I think realistically it must be assumed that they would have done. xvii) On 3 March, 2009 the administrators demanded the return of the intellectual property rights assigned to CJC on the basis that the CJC assignment had been a transaction at an undervalue. xviii) The defendants' pleaded case is that in March 2009, they instructed and retained the claimant to act as their solicitors "generally in respect of" their disputes with the Investors (and Sigma) and the claim by the administrators. xix) On 19 April, 2009 the Investors caused Sigma to move out of the Spartan Close premises. Midland subsequently made a claim against the defendants under their guarantee of the lease. xx) On 21 April, 2009 the Investors made demand for payment of £140,000 under the personal guarantee. The defendants also sought advice in respect of that demand. The Investors subsequently sued for that amount, but on 16 May 2014 HHJ Brown QC dismissed their claim, finding on the facts that they had agreed, as part of the oral arrangements made on 28 November 2008, to release the guarantee. He also accepted the defendants' evidence as to existence of a secret trust for 40% of the shares, but made no order in relation to such a trust as its existence was not in issue in the proceedings.[4]The counterclaim is brought under three heads, which were referred to as follows: i) The Form 88(2) claim ii) The intellectual property claim and iii) Conflict of interest.

The Form 88(2) claim

[5]Under this head, it is pleaded that the solicitors failed to identify or advise the defendants that it was "arguable" that the effect of the form 88(2) signed by Mrs Horton on 4 December 2008 was not to transfer any shares to the Investors but to issue a further 100 shares to the original subscribers so that between them they remained the only shareholders in Sigma, and that the amended form 88(2) signed by Miss Kantor was not effective to allot any shares to the Investors because they had not first been offered to the subscribers in accordance with the pre-emption rights set out in the articles. Accordingly it is said that it was arguable that the defendants and their family remained the owners of all, alternatively two thirds, alternatively half, of the shares in Sigma.[6]Had they been made aware of this argument, it was said, the defendants could have "seized the initiative" in negotiations with the Investors, sought to rectify the share register to show their continued shareholdings and taken control of Sigma by removing Miss Kantor and appointing themselves, thereby being in a position to ensure (inter alia) their reinstatement as employees at their original salaries and that Sigma continued to occupy the leased premises until a new tenant was found, so avoiding a claim by Midland under the guarantee of the lease. The defendants acknowledge that they had agreed to transfer 60% of the shares to the Investors, but would not they say have had to comply with that until the Investors had in turn complied with all the terms of the oral agreement in favour of the defendants. They would have retained a 40% interest in Sigma which, instead of going into liquidation as it has would have become a profitable company saleable within a year for £1.5m.[7]There was clearly some discussion of the effectiveness of the intended transfer of shares, at least by November 2009. On 23 November Mr. Skinner, the solicitor the defendants were dealing with at the claimant firm sent an email saying (p177) "I have spoken to a colleague in corporate. Arguably the Horton family still own 100% of the shares in Sigma having allotted 100 in the memo on incorporation… without board minutes showing approval to allot any further shares, the two 88(2) forms are invalid. The alternative proposition is that there has been a further allotment of 100 shares which you have tacitly approved to Ms Kantor and her friend, which means you own the company in 50% shares".[8]In an email of 25 November 2009 (p179) Mrs Horton posed various questions to Mr. Skinner. She said:
“What is the legal ownership of Sigma Desks Ltd? Based on our review of the existing documentation it would appear that we still own our initial allotment of share[s]. a. the shares were allotted… c. a share transfer form was never executed… e. we never [had] an opportunity to register our shareholding in the share register… As you know, our goal is to complete the transaction as contemplated. We do not wish to take back Sigma Desks now, particularly as we do not know what condition the company is in and what liabilities she has incurred on behalf of the company … However if Kazia Kantor knows we are the legal shareholders and we do not take any action to curb her powers as the director, can she effectively take any actions that would negate any value in Sigma…? ... she appears to have [no] fear of the legal system or any moral guidelines. Should we therefore: a. Advise her that we are still the legal shareholders… c. Remove her as director and appoint one of us?... ”
Mr. Skinner replied (p180):
"The queries raised are complex and require detailed consideration…I would also need to consult a colleague in our corporate department. This would require you to provide additional money on account of services. Realistically we would need around £500 plus VAT…"
. A further engagement letter was sent to confirm instructions relating to this "Shareholder dispute", but the defendants never signed it. Nevertheless a member of the corporate department reviewed the papers and advised that the defendants remained the legal owners of the shares issued to them.

Should we therefore:

[9]The pleaded claim however is that the defendants provided papers to Mr. Heizler of the claimant firm at their first meeting on 10 March 2009 which included the form 88(2) filed on 4 December 2008. Mr. Heizler was an intellectual property lawyer, but said he would consult the corporate department and advise further, but never did. It is said that had he done so promptly, the defendants could have identified this argument much earlier than they did after the 23 November email, and used it to take control of Sigma to their advantage.[10]Mr. Jones's first submission on this point is that the claimant's retainer as set out in its engagement letter signed on initial instruction did not extend to provision of advice on these matters. When they were raised subsequently in November an amended engagement letter was sent but never signed. Given however that the defendants' case is that notwithstanding the written terms of engagement the defendants agreed orally in meetings that they would advise more generally on the disputes between the defendants and the Investors, and in fact did so in other respects, it seems to me that the issue of the extent of the retainer is not one that can be resolved against them without hearing the oral evidence of the individuals involved at trial. Accordingly I must proceed on this application on the assumption that the defendants may establish their case in that respect.[11]There are many problems however with the pleaded case. To start with it asserts that the defendants would have been able to seize control and (for instance) remove Miss Kantor and Mr. Godden as directors merely on the basis that the position the defendants contend for as to share ownership was "arguable". That seems to me plainly unrealistic; if the position was anything short of irrefutable the Investors would not have accepted the validity of any action the defendants purported to take to assert control in plain contradiction of the terms they accept they agreed on 28 November unless and until their right to do so had been established by negotiation or litigation.[12]Secondly, it assumes that the effect of completing or filing the return of allotments on 4 December 2008 was (or arguably was) to allot shares. It was not; an allotment must be made by (a valid) act of the directors acting as a board, or of the members. The "return" is merely a notification to the Registrar that such a corporate action has been taken. That appears to be the substance of the advice Mr. Skinner relayed on 23 November.[13]It would probably be the case that the defendants and their family became members of Sigma on incorporation by virtue of having subscribed for shares even if the register of members had not been made up - see Companies Act 1985 s 22(1); the position is now made clearer by Companies Act 2006 s 112(1) (in force from 1 October 2009). Thereafter, no other person becomes a member except on entry in the register of members; see s22(2) (now Companies Act 2006 s 112(2)). No such entry was made in respect of the defendants or their family. No further shares were issued on 4 December 2008; Mrs Horton's completion of a further form 88(2) did not do so, and since her evidence is that she thought she was transferring existing shares and not issuing new ones there cannot have been any other action taken (such as a decision, however informally made, of the original directors) to issue more shares. Accordingly it might have been argued that the subscribers' position as members holding the original 100 shares had never been effectively changed. It could not have been argued that they held 200 shares.[14]Similarly, the meeting held by Miss Kantor and Mr. Godden on 27 February 2009 (whether they were intending to act as directors or shareholders or both) could have had no effect either to "cancel" the subscribers' shares, or to constitute the Investors as members of Sigma by transfer of the subscribers' shares.[15]However the pleaded argument as to what took place on that day is on the footing that there was an allotment of 100 shares to Miss Kantor and Mr. Godden, but that it was ineffective because the shares were not first offered to the subscribers. This pleading must be on the basis that Miss Kantor and/or Mr. Godden were acting (and able to act) as directors to allot and issue shares (albeit that they were new shares and not those originally issued to the subscribers). I do not consider that the defendants could now seek to amend to deny any act on the part of Miss Kantor and Mr. Godden intending to issue shares, since they did hold a meeting and make a decision that shares should be issued, albeit on a misguided basis.[16]It is accepted that Miss Kantor was a director. This is apparently on the basis that a form 288 was sent to Companies House recording her appointment, but again the form itself would not have been the effective mechanism of appointment. The actual appointment must therefore have been made by decision of the existing directors or shareholders as part of the oral arrangements the defendants agreed with the Investors. The defendants must therefore concede that they took the required action, as they had agreed to do. In these circumstances, although the defendants do not plead that Mr. Godden was a director (apparently on the basis that no similar form was sent relating to him) it must be unlikely that they could have resisted the argument that he was similarly validly appointed. Their own case is that they agreed to appoint him and he agreed to act, so the completion and submission of a form would be irrelevant.[17]Thus Miss Kantor was either the sole director, or she and Mr. Godden were between them all the directors, and her (or their) decision at the meeting was sufficient to exercise the power of the board to issue further shares.[18]There was sufficient authorised capital to make a further issue of 100 shares. The directors had power and authority to allot shares by Art 3(a) and (d) (p99). Art 3(b) provides that "After the first allotment of shares by the directors" (which I take to be an inapt way of referring to the shares taken by subscribers) "any further shares proposed to be issued shall first be offered to the members in proportion…to the existing shares held by them respectively unless the Company shall by special resolution otherwise direct". There clearly was no such special resolution, which would have had to have been made by the subscribers.[19]Contrary to the defendants' pleaded case however there was no credible argument that the purported allotment was thereby void. Companies Act 1985 s80(1) provided that "The directors of a company shall not exercise any power of the company to allot relevant securities, unless they are… authorised to do so by… (b) the company's articles." An allotment in breach of pre-emption rights set out in the articles would not be so authorised. But s80(10) provided that "Nothing in this section affects the validity of an allotment". Provisions to similar effect are now contained in Companies Act 2006 s549.[20]Thus, for reasons different from those put forward in the Defence and Counterclaim, it would in principle have been possible for the defendants (or strictly the subscribers) to have asserted that they were able to continue to act as members holding 100 shares by, for instance, voting on shareholders' resolutions. But contrary to the defendants' pleaded case there was no credible case that they were the sole shareholders; the maximum they might have claimed would have been 50%. They would not have been able by themselves to hold a meeting or "rectify" the share register. They would have no credible argument that any resolution they purported to pass without the concurrence of the Investors was effective to achieve replacement of the directors or any of the other matters pleaded.[21]By the time the defendants consulted the claimant in March 2009, the Investors were already acting de facto as sole shareholders and directors of Sigma. The defendants' pleaded case is that Mrs Horton and her son Nicholas had resigned as directors and Miss Kantor at least had been validly appointed as director. For the reasons given above, Mr. Godden was probably also validly appointed, though it makes no difference for present purposes.[22]Further, the Investors were in de facto control of Sigma and its assets, and had already taken all the corporate actions the defendants complained of except for causing it to vacate the Spartan Close premises. They needed no approval by shareholders to take that step. The dispute with the defendants was well under way and the Investors were plainly minded to take strong, even ruthless, action to achieve their ends.[23]In these circumstances, it seems to me: i) The defendants could not properly have been advised that they had any basis for asserting that they could "seize control" of Sigma by exercising rights as shareholders or directors to reverse or block any action of the Investors. They could not therefore have used such control, or the threat of it, to insist on anything in negotiation with the Investors. ii) The most they could have done was to assert that contrary to what they thought they had done they had not validly disposed of their subscribers' shares, and that although they acknowledged their obligation to do so they would resist any request to comply with that obligation until all the terms of the 28 November agreement were honoured. They might have argued that they would be entitled to vote on any shareholders' resolutions the Investors required to pass, but there is no evidence that any such resolutions were in fact needed, let alone that the potential to block them would have had any impact on the Investors.[24]The argument thus available to the defendants was very weak. Its residual ability to have any effect on the Investors in negotiations was exactly the same after November 2009, when the point was identified, as it had been in March. So far as can be seen from the documents before me, it was not raised in negotiations with the Investors at that stage. If it was, it plainly did not have the effect of bringing the Investors to the table ready to concede the defendants' arguments, as it is now suggested it would have done.[25]Mr. Pepperall sought to characterise their argument as one of the loss of a chance of negotiating a better outcome and so resolving their dispute with the Investors earlier or on better terms. If the shareholding point had been "deployed", it is said, the defendants would or might have been able to "insist" on, inter alia, a written release of the personal guarantee, so avoiding the costs of the litigation. No such claim is pleaded, in the absence of the power to control the directors' actions by securing the passage of shareholders' resolutions against the wishes of the Investors. Even if the defendants were now to seek to amend to do so, the notion that so minor a bargaining point as they in fact possessed would have made any difference to the conduct of the dispute by the Investors is in my view correctly to be considered fanciful.[26]The pleaded claim under this head therefore has no prospect of success because the advice the solicitors are pleaded to have failed to give would have been wrong in law. No amendment has been sought, and although in view of the mistakes in the law reflected in the pleading I have considered alternatives the defendants might have sought to plead, they would not lead to a case with a real prospect of success. There should therefore be summary judgment for the claimant under this head. The Intellectual Property claim.[27]In relation to this head, it is said that the defendants failed to identify that it was "arguable" that the intellectual property rights ("IPR") to the desk were owned by them personally and not by Adeptias. This was so because either i) The sole assignment of such rights by Mr. Horton to Adeptias was invalid for lack of consideration (none was expressed in the deed of assignment), or ii) That assignment, being made by Mr. Horton alone, was ineffective to assign Mrs Horton's share of the IPR. She was a joint owner by reason of the previous joint assignment by Adeptias to them both. This pleaded case was expanded at the hearing to include the argument that the sole assignment was not even effective to transfer Mr. Horton's share of the IPR, because by s36(3) Patents Act 1977 a joint owner of a patent (or an application for a patent) "shall not without the consent of the other or others… assign… a share in the patent [or application]…".[28]If this argument had been identified, it is said, the defendants would have been able "to deliver a swift knock-out blow to the administrators' threatened claim in respect of an alleged transfer at an undervalue [to CJC]", thereby avoiding the costs of dealing with that claim.[29]It is further said this would have "enabled them to exploit their intellectual property rights to the desk". In that respect, no particulars are given of any difficulty the defendants have had in such exploitation. The administrators did not in the event ever bring an undervalue claim. The defendants have not in fact sought to assert that they are personally the owners of the IPR. The IPR have since been further assigned by CJC (acting by Mrs Horton) to Floreat Fortuna LLC, a Delaware corporation apparently owned and controlled by the defendants' family (p251) and a European Patent has been granted to that entity as assignee on the application originally made by Adeptias. There is therefore no pleaded case as to loss from the Intellectual Property claim other than the wasted costs of the undervalue dispute with the administrators.[30]Mr. Jones submits that the claim advanced is bound to fail for two reasons: i) It wrongly assumes that Adeptias owned the rights to both the invention and the applications prior to the joint assignment. Although Adeptias had at that date an outstanding international patent application in its own name stating that it owned the invention, this was not the case. Mr. Horton as the inventor owned the rights to the invention and (until the sole assignment in March 2007) had not transferred those rights to Adeptias. Thus, the joint assignment in 2006 did not vest any such rights in Mrs Horton because Adeptias had no rights in the invention (as distinct from the application) to transfer. Mr. Horton was accordingly the sole owner of the invention and able to transfer it by the sole assignment. ii) The argument that the sole assignment was void as not being supported by consideration is wrong in law.[31]Mr. Pepperall puts forward no argument in opposition to Mr. Jones's submissions on the question of Mr. Horton's ownership of the invention, beyond pointing out that the patent agents acting on the application (and the claimant at the time) proceeded on the basis that Adeptias owned the application because Mr. Horton was its employee. It is he says a matter to be determined on the evidence. But Mr. Jones is in my view clearly right in his analysis which is: i) Mr. Horton as the actual inventor (Patents Act 1977 s7(3)) was the initial owner of the rights in the invention. ii) Although in certain circumstances an employer is entitled to the rights to inventions made by its employees (s39) this cannot have operated to vest any rights in the invention in Adeptias, because a) Adeptias was not incorporated until after the desk had been invented, and b) In any event Mr. Horton was not (and is not pleaded to have been) an employee of Adeptias at any time. He was later found not to have been such an employee in proceedings in the Employment Tribunal. This is not a matter which requires any exploration of evidence, in the absence of any pleaded basis on which Adeptias could have acquired the invention.[32]It follows that at the time of the joint assignment Mr. Horton was the sole owner of the invention, and able in principle to assign it to Adeptias. Section 36, which deals with co-ownership of rights, can thus have had no application to his assignment of rights in the invention, whatever the position in relation to rights to the application. I should record that, probably because s36 only emerged as an issue at the hearing, no exploration was made as to whether that section could apply to rights in an invention before grant, when its terms refer only to a patent after grant and to applications for a patent.[33]Mr. Jones made some supplementary submissions after the hearing in relation to s36 and its effect on the application right, to which Mr. Pepperall responded. In that respect, the position seems to me to be as follows. Mr. Jones accepts that the joint assignment was effective to vest the rights to the existing application jointly in Mr. & Mrs Horton. He contends that Mr. Horton was nevertheless capable on his own of assigning the whole of those rights to Adeptias in the sole assignment, by a combined reading of s 36(5), which deals with disposals of "patented products" by one joint owner of a patent, with s 36(7) which provides that references to a patent include an application and further that in s 36(5) 'patented product' "…shall be construed accordingly".[34]His argument is that disposal of a patented product is thereby deemed to include disposal of a patent application and one joint owner may thus effectively dispose of the interests of all the joint owners in the application. This in my view is obviously wrong. As Mr. Pepperall submitted, subsection 5 deals with persons who acquire an actual product which employs a patented invention from one joint owner of the patent. The required adaptation in the case of a patent application is that this is extended to acquisition of products employing the invention the subject of the application, not to acquisition of the application itself.[35]It follows that the sole assignment was not effective to transfer Mrs Horton's share in the rights to the application that had been previously assigned to her (assuming as I must for present purposes that Mrs Horton may establish on the evidence that she did not consent) and was at least arguably ineffective to transfer Mr. Horton's share in those rights. But this can have no effect on the transfer of the invention right, which was Mr. Horton's sole property. Mr. Pepperall submits that it is still arguable "in the absence of authority" that this transfer was ineffective (apart from the point on consideration). On the contrary, the onus would be on the defendants to provide some authority that the sole owner of the rights to the invention was not capable of transferring them. They have not.[36]I come on to the question whether the sole assignment was void for lack of consideration. Section 30 Patents Act 1977 provides as follows:
“30 Nature of, and transactions in, patents and applications for patents (1) Any patent or application for a patent is personal property (without being a thing in action), and any patent or any such application and rights in or under it may be transferred, created or granted in accordance with subsections (2) to (7) below. (2) … any patent or any such application, or any right in it, may be assigned... (6) Any of the following transactions, that is to say— (a) any assignment… of a patent or any such application, or any right in a patent or any such application… shall be void unless it is in writing and is signed by or on behalf of the assignor...” (a) any assignment… of a patent or any such application, or any right in a patent or any such application… shall be void unless it is in writing and is signed by or on behalf of the assignor...”
[37]Mr. Jones submits, and it is not disputed, that the right of an inventor to his invention prior to grant is also transferable personal property; s7(2)(c) Patents Act 1977 contemplates that there can be a "successor in title" to an inventor, and see also per Arnold J in KCI v Smith & Nephew [2010] EWHC 1487 (Pat) at para 66. Both counsel proceeded on the footing that the invention right is to be treated for the purposes of formalities surrounding assignment in the same way as a patent or application, although not expressly mentioned in s30.[38]There is, apparently, no clear authority as to whether an assignment of a patent requires consideration or not. Neither counsel was able to refer to any statement on the point in any of the standard works on patents. As Mr. Jones submitted, if an assignment were void without consideration, it would be surprising if this were not known to practitioners and accordingly expressly stated in standard textbooks. Mr. Pepperall submitted that consideration was required, on the authority of Re Casey's Patents [1892] 1 Ch 104.[39]In that case the question was whether the Registrar had been correct to register a letter signed by the owners of a patent to their employee in which they said "… we hereby agree to give you one third share of the patents above mentioned, the same to take effect from this date…". The Register was required to include "… notifications of assignments… of patents… and such other matters affecting the … proprietorship of patents as may be prescribed." There was an issue whether the letter was intended to confer an immediate interest in the patents or was only a promise to transfer such an interest in the future.[40]At first instance Romer J said (p107):
“In my judgment, it was intended to confer by that document on the defendant a one third share in the patents as from its date. On the evidence there was clearly consideration enough to support the transaction and it was not intended that the interest conferred on the defendant should be in any way conditional.”
(emphasis added) This was relied on as showing, by implication, that consideration was required for an assignment to be effective. Mr. Pepperall accepted that he could not identify any more direct statement in any other authority on the point.[41]It is apparent, reading the report of the judgments and arguments at first instance and on appeal that the starting point for objections to registration of this document was that it was not an assignment made by deed, whereas the normal (and probably required) form of legal assignment of a patent at the time required a deed. Lindley LJ said (p110):
“… and bearing in mind that before the [Patents Designs and Trade Marks Act 1883] the right method of assigning a patent was by deed, and not finding in [that Act] anything that alters the law in that respect, I suppose it must be taken that the proper mode of assigning a patent is by deed now; but bearing that in mind it is quite obvious that something more than assignments by deed may be registered.”
[42]Bowen LJ said (p113):
“But it certainly does strike one that a patent which is created by deed can only be assigned by deed … and it does strike me as probable that now, as before the Act, legal proprietorship is that which is dealt with under section 87 and that the person who is proprietor of the patent means the proprietor of the patent in law. Therefore it would be wrong, it seems to me, to treat a writing not under deed as if it were an assignment of a patent which would give a right to the person who claimed under it to consider himself as the legal proprietor.”
[43]It was apparent however on examining the register that the entry made was not a change of legal proprietorship but simply an entry of the letter as a matter "affecting the proprietorship" of the patent. All the judges in the Court of Appeal held that the letter amounted to an immediate equitable assignment (see for instance Lindley LJ at p 112). The question of consideration was addressed in the context of asking whether there was anything to prevent the letter operating as an assignment in equity, not at law. This is clear from the judgment of Bowen LJ who said at p115: “It cannot be denied that it is an equitable assignment if it is anything… But then it was said by Mr Daniel 'but there is no consideration and this document is not under seal.' We will see if there is consideration…”.[44]Caseys Patents is not, therefore, an authority that consideration is required to support an assignment at law. Consideration may be required to support an equitable assignment, since equity does not assist a volunteer. But there seems to be no reason in principle why a legal assignment cannot be made without consideration, for instance by way of gift. Other types of property, both real and personal, may be transferred at law without consideration. No reason was suggested why patents should be different.[45]There is nothing in any of the judgments in Casey's Patents to suggest that a practice of assignment by deed was adopted in order to avoid enquiry as to consideration. If there had been any historic fundamental requirement for consideration, it might be expected that the practice adopted would have allowed for the alternatives of either reciting the consideration or executing a deed. But that is not what appears from the case; in so far as there is a reason given it is either one of a universally adopted practice, or one arising from the nature of a patent as property created by deed.[46]Of course, for so long as the correct mode of assignment at law was by way of deed, it would not have been necessary for the deed to contain any statement as to consideration. If consideration was required but had not been given, execution by deed would overtake that requirement. Thus, assignment by deed was always possible, and provision of consideration was irrelevant. That situation remained the case until the enactment of the Patents Act 1977, when the requirement for a deed was abolished and replaced by signed writing. I should record that both counsel were agreed that although for some reason s30(6) is framed in the negative (an assignment is void if not made by signed writing) its effect is that an assignment under hand is valid without any requirement for execution as a deed.[47]It follows that if Mr. Pepperall's argument is correct, the effect of enacting s30 would be in substance to create a requirement for consideration where there was none before. His submission was that the requirement may always have been there, but was not important until the need for a deed fell away. But this I think would be a most surprising consequence to the profession. Since there is in my judgment no support to be found in Casey's Patents for the existence of the alleged requirement, and no other authority cited, I hold that it does not exist, and an instrument in writing satisfying s30(6) is effective as a legal assignment without any additional requirement for consideration.[48]The sole assignment was thus effective to vest in Adeptias Mr. Horton's right as inventor of the desk, even if it was not similarly effective in relation to his and/or Mrs Horton's rights in the previous international application. I note that the European application appears in any event to have been made by Adeptias after the joint assignment, so Mrs Horton could not have claimed any rights to that application. The US application was made initially by Mr. Horton (alone) and so on the face of it validly assigned by him to Adeptias. It follows that Adeptias did transfer on to CJC (at least) the right to the invention, and the Hortons could not have delivered any "knockout blow" to the undervalue claim by asserting that they, and not Adeptias, had owned all the rights apparently transferred to CJC. The most they could have claimed was that the ownership issue was complex and that Mrs Horton held some of the rights. Even to raise that point she would have had to claim to the administrators that she had not consented to the sole assignment; a matter I have assumed she might establish at trial but which the administrators would not necessarily have accepted on the basis only of her assertion. It is not suggested (and I do not think could be) that the introduction of this complexity would have had the pleaded "knockout" effect on the administrators.[49]The intellectual property claim also therefore has no real prospect of success and summary judgment should be given for the claimant in that respect too.

Conflict of Interest

[50]The conflict claim has been recently added by amendment, and arises as follows. Prior to being consulted by the defendants in March 2009, the claimant firm had acted for Midland, the landlord of the Spartan Close premises, when Adeptias took its lease. In January 2009 Mr. Harris, a solicitor in the insolvency department who later advised the Hortons, wrote to Midland about the continued occupation of the property by Adeptias through its administrators (p325). He had evidently previously had a discussion of some sort with Midland and reviewed draft correspondence prepared by them (it is not clear what this dealt with, specifically, but is likely to have included potential forfeiture of the lease). He asked Midland what the position was and was told the administrators were for the moment still paying rent. It is not suggested that in any of this he discussed or advised about any potential claim against the Hortons.[51]Mrs Horton's evidence is that at their first meeting with Mr. Heizler she asked him whether there was any conflict, because she knew the firm had previously acted for Midland. She was told there was not, that only the property department had so acted and that was a separate department. Mr. Jones submits this evidence should be treated as incredible; Mr. Heizler would not have given an unqualified assurance before running a conflict check. But it does not seem to me inherently unbelievable; Mr. Heizler did not need a conflict check to find out that the firm had acted for Midland because Mrs Horton told him that herself. What exactly was said could only be determined at trial. The strongest case from the defendants' perspective would be that Mr. Heizler knew that Mr. Harris had been consulted by Midland since the administration but did not say so. Since Mrs Horton does not say she asked for or was given any assurance that the firm would cease to act for Midland either generally or in relation to the Spartan Close property it would seem the purpose of the enquiry was to establish whether there was any reason for the firm to decline to act for the Hortons. It is not suggested that it should have done.[52]On 17 April after the defendants notified the claimant that Sigma had vacated the premises, Mr. Heizler advised them (p327) that in view of their guarantee they should "keep on the good side" of Midland. Mrs Horton says she is "now unclear" whether he may have had Midland's interests in mind when so doing. In June (p327A) Mr. Harris gave the defendants insolvency advice; he records they told him they had received a statutory demand for rent and had given a personal guarantee to the landlord. No criticism is made of his advice.[53]In July another member of the firm wrote to the administrators (p257) notifying them that Midland intended to forfeit the lease by peaceable re-entry and inviting their consent. It appears the administrators did not object (the claimant pleads they consented) and in September the claimant confirmed that re-entry had been effected (p258). It does not appear that the claimant firm played any active role in this re-entry.[54]The defendants say that their liability under the guarantee "flowed from" the forfeiture.[55]The claimant accepts that at some point after 26 August 2009 it was asked to act for Midland on a claim against the defendants under the guarantee. It declined. Midland used other lawyers to pursue the claim, which the defendants settled on payment of £70,000.[56]The defendants accept they suffered no loss from the claimant having failed to disclose any conflict and continued to act for Midland to the extent it did. From this it must follow that they accept that Midland would have forfeited the lease in any event and that their liability under the guarantee was not increased or accelerated by anything the claimant did. It is not said that the defendants would have declined to instruct the claimant firm if told at the outset that Mr. Harris had been consulted, or that they would have withdrawn their instructions at any point if told that the firm was in any way dealing with the forfeiture. Further, it is clearly wrong to say that the forfeiture led to their liability in any way; they were liable for breaches of the lease by Adeptias, whether in respect of rent of otherwise, irrespective of forfeiture. The defendants do not say they did anything they would not otherwise have done to keep "on the good side" of Midland in reliance on what Mr. Heizler said to them.[57]They maintain nevertheless that the circumstances amounted to a breach of the solicitors' fiduciary duty of loyalty and that this constitutes another ground for not paying their fees. Mr. Pepperall did not elaborate on this submission in argument. It was he said a matter that required exploration at trial amounting to a "compelling circumstance" to refuse summary judgment. He was not aware of any authority whether such a conflict justified failure to pay, but submitted it was a fundamental breach of contract by the solicitor. If he is right, the value of this element of the counterclaim is limited to neutralising the claim for fees and interest.[58]In fact there is relevant authority on the question whether a fiduciary acting in breach of his duty as such forfeits his entitlement to remuneration. The modern cases stem from Keppel v Wheeler [1927] 1KB 577, and I considered them in Stupples v Stupples & Co [2012] EWHC 1226 (Ch). Without repeating all that was said there, I held that they distinguished between circumstances showing only a breach of contract, as distinct from breach of the special duties imposed on a fiduciary. Insofar as what is alleged is a breach of contract, there is in my view no prospect of success in the allegation that it amounted to a fundamental breach entitling the defendants to terminate the retainer and escape from any unperformed obligation on their part (ie payment). The core of the contract was to give advice on the matters instructed, not to disclose whether Midland had taken or might take some action having a bearing on its claim against the defendants. The remedy for that breach would therefore be nominal damages only.[59]In this case I accept that if the defendants' case is accepted there is an arguable case of breach of the special duty of loyalty. But the authorities make clear that it does not automatically follow that any entitlement to remuneration is forfeit. It may do, where the agent is guilty of dishonesty or bad faith (in the special equitable sense those terms are used in relation to a fiduciary), such as by accepting a bribe or secret commission from the other party to his principal's transaction. But this is not always the case. Atkin LJ said in Keppel:
“Now I am quite clear that if an agent in the course of his employment has been proved to be guilty of some breach of fiduciary duty, in practically every case he would forfeit any right to remuneration at all. That seems to me to be well established. On the other hand, there may well be breaches of duty which do not go to the whole contract, and which would not prevent the agent from recovering his remuneration; and as in this case it is found that the agents acted in good faith, and as the transaction was completed and the appellant has had the benefit of it, he must pay the commission.”
[60]In Hippisley v Knee Brothers [1905] 1 KB 1 an agent placed advertisements for his principal and received a commission from the newspapers concerned, which he retained. He was found liable to account for the commission, but not to have forfeited his fee, on the ground the receipt of the commission was not sufficiently connected with the real subject matter of his contract, ie the provision of the services he was to be paid for. In Imageview Management Ltd v Jack [2009] EWCA Civ 63 Jacob LJ accepted the submission (at para 44) that there could be cases of breach of duty amounting to "harmless collaterality" (though he held that in the case before him an agent's side deal for "a secret payment to the agent from the very party with whom the agent is dealing on his principal's behalf" was not such a case).[61]Many of the cases refer to findings that an agent acted "honestly" or "in good faith" or in an honest mistake as to any breach of duty. No doubt, any conclusion as to subjective motive or belief of Mr. Heizler or other members of the claimant firm could only be reached at trial. But in this case there is no pleading of dishonesty or bad faith and no suggestion of anything as serious as acting in direct conflict of interest or receiving a secret payment. The allegations against the claimant seem to me to amount at their highest to three matters: i) Informing the defendants incorrectly on first instruction that only the firm's property department had previously acted for Midland, when a member of the insolvency department had done so. This was arguably a breach of duty to inform the client of the extent of the firm's engagement by Midland. If so, it made no difference whatever to the defendants; they knew that Midland was a client of the firm and that they were potentially liable under their guarantee and do not say that if given the full picture they would not have proceeded to instruct the claimant. They did not ask the firm to cease acting for Midland and so must have accepted that it could continue to do so. There was accordingly no breach of duty arising merely from the fact that the firm had two clients whose interests might come into conflict. The defendants could properly expect that if the firm were asked to act further for Midland it would not do so against them or, arguably, in any manner adversely affecting their own interest, but nothing in the evidence supports any claim that it did so. For the reasons given above, and as the defendants accept, nothing the claimant did had any effect on the defendants' exposure under their guarantee or the claim that was made against them. ii) Advising the defendants to keep on the good side of Midland. This was no more than common sense, and is not suggested to have led to any specific action by the defendants. It does not in my view arguably show any disloyalty to the defendants or favouring of Midland. In the same email Mr. Heizler continued "Midland… I hope are continuing to be positive and co-operative towards you". Though Mrs Horton says she is "now unclear" whose interests Mr. Heizler was following, she knew at all times that Midland was a client of the claimant, so has learned nothing since to put this email in any suspicious light. iii) Failing to decline instructions from Midland to correspond with the administrators about peaceable re-entry. That did not directly concern the defendants, did not increase their exposure in any way or lead to any action by Midland that they would not have taken otherwise, and did not lead to any claim against the defendants that would not otherwise have been brought.[62]At worst these matters amount to no more than trivial breaches of the claimant's fiduciary duty, if they are breaches at all, which did not affect the performance by the claimant of its services to the defendants and had no adverse impact on them. They do not "go to the whole contract" but were in Jacob LJ's phrase, matters of "harmless collaterality". There is in my view no real prospect that the court at trial would find them sufficient to justify refusal to pay fees otherwise properly due for the advice the defendants sought.[63]The conflict claim therefore also in my judgment has no real prospect of success and there should be summary judgment for the claimant on that aspect.[64]I invite the parties to agree the order resulting. There need be no attendance at handing down if they are able to do so. If not, I will deal with matters arising up to 30 minutes on that occasion. If longer is needed, the parties should submit an agreed time estimate and a later hearing will be fixed.

Cited in 1 later judgment