Carruthers Law

Optaglio Ltd v Tethal & Anor [2015] EWCA Civ 1002

October 13, 2015

In Optaglio Ltd v Tethal & Anor [2015] EWCA Civ 1002 (06 October 2015) this matter came before the Court of Appeal from an earlier hearing in the Chancery Division of the High Court before HHJ Purle QC on the 10th September 2014.In that hearing the Appellant initiated proceedings against the Respondents for breach of directors’ duty in respect of a patent application, the core of this dispute and, they were granted summary judgment.

The Appellants, with permission appealed, arguing that this matter was not right for summary judgment. The Respondents contended that the claim should have been dismissed with a conditional order made by the Judge.

The Court of Appeal had to decide upon the issues which Lord Justice Floyd considered were:

• Did the judge misdirect himself as to the approach to summary judgment?
• Was the judge justified in holding that it was not seriously arguable that the withdrawal of the application was a breach of duty?
• If the withdrawal of the application was a breach of duty, was it established to the summary judgment standard that all shareholders, in particular Mr Zhukov, had acquiesced in the breach?
• Was the judge justified in holding that the claimant’s case against the second defendant faced an insuperable difficulty because the second defendant ceased to be a director at the end of 2007?
•  Was the judge justified in dismissing the case on the ground that there was no arguable case of any loss?”

Lord Justice Floyd observed that the Appellants counsel considered the judgment in the High Court to read that the Judge believed the case to be a matter “of weighing up and balancing conflicting evidence” which Lord Justice Floyd observed was inappropriate for an application for summary judgment. He continued that, if the principles had been followed correctly by the High Court Judge then he would not have allowed the appeal on this ground only.

The Applicant’s counsel believed that the Judge should not have made findings of fact on there being a breach of duty which is what he based his conclusions on.

With regard to the shareholders consent, the Appellant’s counsel submitted that the Judge would not be able, on an application for summary judgment, to ascertain whether the Respondents were being truthful and if the witnesses for the Appellant, were not. Further, with regard to Mr Zhukov, who held around a 90% stake holding in the Appellant company, which he acquired in 2006, his denial of there being consent from the shareholders, should be examined in a trial.

The Respondents’ counsel relied upon the withdrawal of the application being sanctioned by the shareholders of the Appellant which had not been either denied or admitted in the Reply.

The Judge considered that Mr Zhukov knew about the withdrawal of the application. Lord Justice Floyd noted that the Judge had reached his conclusion by going through a vast amount of material without pointing to something specifically. Lord Justice Floyd assumed he was referring to paragraph 15 of his judgment and observed that the Judge had placed reliance upon anyone reading the DTI agreement would know the patent agreement had been withdrawn.

Lord Justice Floyd disagreed with the Judge’s reasoning. He did not consider that the agreement would only make sense if the Appellant’s application was withdrawn or, if not withdrawn, that if a patent was granted, a licence would not be needed. He did not believe that the DTI agreement made it clear that the application had been withdrawn, in particular as, he noted, the Applicant did not speak English.

Lord Justice Floyd did not consider Mr Zukhov could have been aware of the decision to withdraw the application, He did not believe that the Judge on a summary judgment application could show justification that Mr Zukhov gave his consent to the withdrawal of the application and reach the conclusion that all the shareholders authorised the withdrawal.

Further, in respect of the second Respondent, he disagreed with the Judge that it had been established he was not part of the decision in respect of the withdrawal of the application as he was not a director at that time. Lord Justice Floyd believed it was wrong to prevent the Appellant from seeking to prove that he was a party.

Further with regard to loss he could not accept the reasons given by the Judge that the Appellant had lost nothing and because of the length of time which had elapsed since the application was withdrawn. He observed that it was a reasonable point to make but since then the Appellant company had presented draft amended particulars of claim showing the loss in greater detail.

Lord Justice Floyd, responded to the submission from the Respondents Counsel that the case should be dismissed for lack of bona fides, that he did not think the matter had been brought before the court in bad faith.

He continued that he saw no reason to strike out the original particulars of claim but that he would allow the amendments presented by the Appellants as he noted they provided more details of their case, which has already been before the court.

He further noted that the Respondents wanted the Appellants to pay 70% of their estimated costs, as a condition of carrying on with the claim and was persuaded to make a conditional order as to their costs. He made reference to the White Book and the explanation given that conditional orders are not made by the court on the basis that the Claimants case is weak. He continued that the court steers clear of those assessments beyond whether the case has a realistic prospect of success.

He concluded by saying that he would allow the amendments to the particulars of claim as annexed to the Appellants supplemental skeleton, allow the appeal and set aside the order for summary.

Lord Justice Lewison and Lady Justice Black agreed.