Summary

The dishonest, unilateral alteration of a share agreement, which had the effect of ensuring that the defendants alone enjoyed the benefit of the exploitation of an invention, amounted to breach of contract and breach of their fiduciary duty as directors to act for a proper purpose and in the interests of the claimant company.

Facts

The claimants alleged various misappropriations by the defendants (R and M) designed to ensure that they alone enjoyed the benefit of the exploitation of an invention. R and M were shareholders and directors in the second claimant company (G), which applied for a patent for a method and apparatus to locate lost golf balls known as the "ballfinder". The first claimant company (K) entered into a European distribution agreement with G to sell the ballfinder and raised funds for investment, in return for which K took a shareholding in G. The third and fourth claimants had also invested in the scheme. Agreements between K and G were contained in a shareholders' agreement that included a warranty by R that all current or future intellectual property rights relating to the ballfinder not already transferred to G would be assigned to G as soon as possible, and that R held any interest in those rights on behalf of and for the sole benefit of G. A company (X) was incorporated, of which G was sole subscriber and R sole director, for the purpose of manufacturing the ballfinder. X was to be a wholly owned subsidiary of G. R and M subsequently caused X to issue shares to them, thereby diluting G's shareholding in X to a fraction of one per cent. Following a request for further finance, R and M suggested amendments be made to the share agreement, and email exchanges between the parties produced a draft version. However, R altered that version without drawing it to the other parties' attention, and unilaterally reversed the purported agreement, thereby providing a warranty to the effect that G was not the sole shareholder of X. Issues later arose as to G's and X's finances. R disclosed to H that he had caused X to apply for a "stand alone" patent in relation to the invention, and a company search revealed that G's ownership of X had been reduced. The claimants issued proceedings against R and M for breach of contract (specifically the shareholder agreement) and for breach of fiduciary duty as directors in respect of R's and M's duty to act for a proper purpose and in the interests of G. The claimants sought declaratory and injunctive relief.

Held

The facts disclosed good causes of action for breach of contract and breach of fiduciary duty. R's conduct in altering the agreement unilaterally had been dishonest. Motivated by their own interests, and not the interests of G, and the with the purpose of personal gain rather than gain for G, R and M had sought to take and keep X, and thereby the benefit of the ballfinder invention, from G. That was in breach of their fiduciary duties as directors of G and also in breach of their contractual promise under the shareholders' agreement to use all reasonable endeavours to maintain, improve and extend the interests and business of G. The claimants were therefore granted declarations that R and M held their shares in X on trust for G, and that R and M held intellectual property rights relating to the invention set out in X's United Kingdom patent application on trust for X. The claimants were also granted injunctions restraining R and M from dealing with, disposing of, selling, allotting or issuing shares in X, or dealing with, disposing of, selling, or entering into any transaction whatsoever in relation to an invention capable of locating lost golf balls. Further, an account was ordered to be taken of all the profits made by R by reason of his exploitation of intellectual property rights misappropriated from G.

Judgment for claimants