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England and Wales High Court (Patents Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Patents Court) Decisions >> French v. Paul Julian Mason, Acme Jewellery Limited [1998] EWHC Patents 290 (23rd October, 1998) URL: http://www.bailii.org/ew/cases/EWHC/Patents/1998/290.html Cite as: [1998] EWHC Patents 290 |
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CH 1998 F 2196
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
PATENTS COURT
Mr Justice Pumfrey
BETWEEN
CHRISTOPHER SIMON FRENCH
Plaintiff- and -
(1) PAUL JULIAN MASON
(2) ACME JEWELLERY LIMITED
Defendants
Catherine Newman QC and Jonathan L M Shaw instructed by Jacobsens for the Plaintiff
Richard Arnold instructed by Wragge & Co for the Defendant
Hearing date(s): 20 July 1998
JUDGMENT
I direct pursuant to RSC Order 68 rule 1 that no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic.
DATED 23 October 1998
Introduction
1. By this application, the defendants apply to strike out the plaintiff's claim that two patents of which the second Defendant ("Acme") is the registered proprietor are held on constructive trust for him. I shall refer to the Plaintiff as Mr French and to the first Defendant as Mr Mason. The patents in suit are 2225925 and 2256576. 225925 was applied for on 20 November 1989 claiming priority from two applications filed in November 1988 and April 1989. 2256576 was divided out of 2225925. The patents were granted on 17 November 1993.
2. Mr French's claim is one aspect of a dispute between him and Mr Mason which has its origins in their commercial relationship as manufacturing jewellers. This relationship has already been the subject of a petition under section 459 of the Companies Act 1985 in which Jacob J held that Mr French, who held 10% of the issued share capital of Acme, had shown that the affairs of the company had been conducted in a manner unfairly prejudicial to him and made an order for the purchase of his shares by Mr Mason on a valuation as at 31 July 1992. Jacob J's order was made on the 11 November 1997 and was entered in May 1998. A valuation has been commenced but I believe it cannot be concluded, because of the claim made in the current proceedings.
3. While Jacob J's judgment should be referred to for the detail of his findings in respect of the relationship between Mr French and Mr Mason, I can summarise the findings which are immediately relevant as follows. Acme was incorporated in 1978. Its business was the manufacture of jewellery. Mr Mason provided all of the capital. Mr French joined Acme in 1981 as a sales representative. He was successful, and Mr French and Mr Mason, and their respective wives, became friends. In 1986, Mr Mason transferred 2% of his shares in Acme to Mr French by way of gift, and in November 1985, Mr French became a director of Acme. It seems that Mr French was at all times employed by Acme under a contract of employment. After he had been excluded from the management of Acme and asked to leave in May 1992, he brought proceedings in the industrial tribunal for unfair dismissal, which were compromised on a payment by Acme.
4. In late 1988 it seems that Mr French invented a sleeper earring which was marketed under the name "the Invincible". Jacob J found that the relationship between Mr French and Mr Mason had begun to deteriorate only in spring of 1991, and that from some date after Mr French's joining the company and that date there had been a relationship in the nature of a "quasi partnership" (see Re Westbourne Galleries [1973] AC 360) between them. Accordingly it is not in dispute that at the time the invention was made (1) Mr French was employed by Acme as a salesman (2) he was a director of Acme and (3) a relationship akin to partnership subsisted between Mr French and Mr Mason, for which Acme was the vehicle.
5. It is clear from the Jacob J's judgment that at the time of the hearing before him it was contemplated that Mr French would bring proceedings under s 40 of the Patents Act 1977 for compensation of the footing that the patents were of outstanding benefit to the company. It is not clear whether or not a proprietary claim to the patent was intimated.
The present proceedings
6. The present proceedings were started by Writ issued the 16 April 1998. The amended Statement of Claim sets out in paragraphs 1 to 9 essentially the facts which were alleged in the petition and proved in the s 459 petition before Jacob J. Mr French has applied to re-amend the Statement of by Notice of Motion dated 17 July 1998, and it was agreed that I should consider the Statement of Claim as so re-amended. Paragraph 9 pleads in the alternative a partnership or a relationship of quasi partnership. That paragraph and paragraph 10 are in these terms:
"9. There was a relationship of mutual trust and confidence between the Plaintiff and the first Defendant whereby it was the common intention of, and agreement between, the Plaintiff and the First Defendant that they would continue to work together as co-directors and as partners and/or quasi-partners and that they would continue to:
i) receive suitable salaries from the company;
ii) receive suitable company benefits including that of company cars;
iii) receive dividends and/or remuneration in accordance with their shareholdings (or agreements to own shares)
iv) receive such remunerated employment from the company until such time as it was either sold to a third party or it became a UK publicly listed company
v) act in good faith for the benefit of the company
vi) share in the management of the company.
10. In the premises, the first Defendant and the second Defendant by reason of such promises and representations made to the Plaintiff were fixed with a fiduciary duty towards the Plaintiff to ensure the objects of such partnership and/or quasi partnership were carried out.
The reference in paragraph 10 of the pleading to "promises" may also be a reference to the pleading of paragraph 7 and 8, to the effect that Mr Mason promised Mr French that the latter would become his partner and that he would receive a further 8% of the issued shares by reason of his becoming a partner.
7. Paragraphs 12 and 13 set out in more detail Mr French's allegations as to the responsibilities which he had at Acme. He says in paragraph 14 that he conceived and invented a revolutionary process for the production and manufacture of earring sleepers which is the subject of the patents in suit, and (paragraph 17) that the patents were applied for and granted to Acme by reason of his fiduciary duty as a director of Acme, his duties owed to Mr Mason as a partner or quasi partner and in reliance on the representations made by Mr Mason in respect of the partnership/quasi partnership between them. The re-amendment to which I have referred adds that one of the grounds on which Mr French applied for the patents to be registered in the name of the Acme was "the belief induced by the agreement between himself and [Mr Mason] at paragraph 9 herein that he would in the future control the development and exploitation of the patent together with [Mr Mason] through [Acme]". Paragraphs 18, 19 and 20 plead breaches of the fiduciary duty allegedly owed by Mr Mason to Mr French in 1992.
8. By paragraph 20A
"The lodging of the completed specification by [Mr Mason] in the name of [Acme] was unconscionable and a breach of the fiduciary duty owed by [Mr Mason] to [Mr French]. Once [Mr Mason] has, by procuring the dismissal of the Plaintiff, evinced an intention to repudiate the agreement between himself and [Mr French] as appears in Paragraph 9 herein, it was unconscionable to continue with the lodging of the specification in the name of [Acme] thereby appropriating [Mr French's] invention where [Mr Mason and Acme] have been unjustly enriched."
1. This is in fact a claim made in relation to the lodging of the application for the divisional. The divisional is in respect of matter contained in the parent application (section 15(4) of the 1977 Act) and therefore falls to be considered with that application. No distinction can be drawn between them.
9. The claim to the patents is raised by paragraph 21 which is as follows:
"In the premises the Second Defendant holds the rights to the Patents and the patent protection in the said invention on trust for the Plaintiff and the Plaintiff seeks a declaration to such effect."
10. The Patents Act 1977 deals with the ownership of inventions made by employees in sections 39-43. Section 39, which excludes the operation of any other rule of law, provides that an invention belongs to an employer in two circumstances, and in all other circumstances belongs to the employee. Those circumstances are:
(a) [the invention] was made in the course of the normal duties of the employee or in the course of duties falling outside his normal duties, but specifically assigned to him, and the circumstances in either case were such that an invention might reasonably be expected to result from the carrying out of his duties; or
(b) the invention was made in the course of the duties of the employee and, at the time of making the invention, because of the nature of his duties and the particular responsibilities arising from the nature of his duties he had a special obligation to further the interests of the employer's undertaking.
2. It seems to me to be common sense that the question of ownership of an invention must first be considered as of the date on which the invention was made. It follows that the relevant date is November 1988, when it is pleaded that Mr French made his invention. If there is an institutional constructive trust of the invention in favour of Mr French it must have arisen at that time.
11. Miss Newman for Mr French submitted that it appears to be taken for granted that an employee who is also a director of his employer would inevitably have a special obligation to further the interest his employer's undertaking, and thus in effect that company directors who are also employees would lose their inventions. I am far from sure that this is necessarily the case. Before the 1977 Act there are very few cases in which a simple employee has succeeded in a claim to ownership as against his employer, and very many in which he has failed. I am not aware of any case in which a director has been held entitled as against the company to retain an invention relating in some way to the company's business, but nonetheless it seems to me that in every case the question is one of the scope and nature of the special duty to further the interest of the employer's undertaking. I have little doubt that any director contending that he owns a patent for an invention relating to the company's business faces an uphill task, but that is not the same as saying that he cannot succeed.
12. It seems to me that the amended Statement of Claim might have been capable of supporting a contention that the invention did not belong to Acme which employed Mr French in November 1988 because the circumstances did not fall within either of the limbs of section 39(1), were it not for paragraph 17 which appears to say that Acme was beneficially entitled to the invention and so entitled to apply for the patent (see section 7 of the 1977 Act). If Acme were not entitled to the invention by virtue of the provisions of section 39, I could see a possible argument that it held the patents on resulting trust for Mr French. Notwithstanding Miss Newman's protest that in fact what is pleaded is an orthodox constructive trust, I think that the pleading is correctly read as contending for a classical or institutional constructive trust and also that a trust ought to be imposed as a result of the breaches of duty alleged in paragraphs 18, 19 and 20. They also are part of the "premises" of paragraph 21. I shall consider this application on that basis. Curiously, the pleading does not in terms suggest that the case does not fall within either of the limbs of section 39(1) and the facts pleaded are so exiguous that they cannot, if proved, be determinative of the question. If the contention is that section 39(1) was not satisfied, the pleading is obscure and embarrassing.
13. So far as the institutional constructive trust is concerned, the question is whether on the facts pleaded the plaintiff has the beneficial ownership of the patent. As I understand it, it is essential to consider the circumstances in which the disputed property (the invention) came into the alleged trustee's hands. Where it represents an advantage obtained by unconscionable dealing, or property obtained in breach of fiduciary obligations, or is obtained in consequence of a breach of trust, the position is no doubt clear. But the property subject to the alleged constructive trust must have come into the hands of the alleged trustee in consequence of such behaviour. In a case to which section 39 of the Patents Act 1977 applies, I am quite satisfied that there is no question of the employee retaining beneficial ownership as against the employer. Were this the case, the employer would require a licence to work the invention, a possibility of which there is no suggestion anywhere in the section. Where the section speaks of the invention being "taken to belong to his employer for the purposes of this Act and all other purposes" it is in my view plainly talking about ownership in a sense which is not technical, and which does not distinguish between legal and equitable ownership. It is talking of the ownership which permits the owner to deal with the patent and to work under it.
14. Miss Newman submits that Jacob J has found that there existed a quasi partnership between Mr French and Mr Mason, that it was a feature of this relationship that Mr French would remain employed in the enterprise and would reap the benefits of the invention, and it was because of this relationship that Mr French gave Acme the invention. She submits therefore that the ownership of the invention by Acme (and I assume that she would include ownership by operation of law arising out of Mr French's employment by Acme) is in effect an incident of the relationship between Mr French and Mr Mason, Acme being merely a vehicle for the furtherance of that commercial relationship.
15. I do not believe that this is a correct analysis of the pleaded facts. First, it is to be observed that the use of the term quasi partnership is merely use of a convenient shorthand to describe a relationship in which the just and equitable ground for winding up may be invoked. To quote the well-known words of Lord Wilberforce:
3. To refer, as so many of the cases do, to "quasi-partnerships" or "in substance partnerships" may be convenient but may also be confusing. It may be convenient because it is the law of partnership which has developed the conceptions of probity, good faith and mutual confidence, and the remedies where these are absent, which become relevant once such factors as I have mentioned are found to exist: the words "just and equitable" sum these up in the law of partnership itself. And in many, but not necessarily all, cases there has been a pre-existing partnership the obligations of which it is reasonable to suppose continue to underlie the new company structure. But the expressions may be confusing if they obscure, or deny, the fact that the parties (possibly former partners) are now co-members in a company, who have accepted, in law, new obligations. A company, however small, however domestic, is a company not a partnership or even a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in.
4. Jacob J's finding that there existed a relationship of quasi partnership between Mr French and Mr Mason, while supporting his decision to exercise the jurisdiction under s 459, did not effect the status of either of them. They were not partners. Second, it is plain that Mr French's employment commenced before the quasi partnership, although his directorship did not. Undoubtedly there was "something more" in the relationship between Mr French and Mr Mason than the expectation created by the Articles but I cannot see how that subsequent relationship can affect the incidents of the existing employment. Third, it is clear on the pleaded case that the special relationship came into existence before the making of the invention which is the subject of the patents. This means that the relationship was established without reference to the invention. If the relationship was established without reference to the invention, I do not believe that it is possible that the basis upon which Acme owned the invention can be affected.
16. Miss Newman relies upon the breaches of fiduciary relationship to which I have referred above as establishing the existence of a constructive trust because they took place before a meeting at the Patent Office which resulted in the filing of the divisional application. She submits that the specification was lodged by Mr Mason "in the name of Acme" which she says was unconscionable behaviour. This objection is misconceived. Acme already claimed to be entitled to the invention. In entitlement proceedings before the Comptroller General under section 37 of the 1977 Act, it is open to the Comptroller (providing that the application is made within two years of grant-see sections 72 and 74 of the Act) to revoke the patent and permit the owner of the invention to apply for a new patent in respect of the inventive subject matter which he owns. Thus, providing proceedings are started in good time, the fact that a person not entitled has had conduct of the application need not prevent the person truly entitled from obtaining a valid patent for his invention in a form which he wished. It is irrelevant that the wrong person has prosecuted the application. If the application were not prosecuted, that would certainly be a breach of Mr Mason's duties to Acme, since Acme owned the invention and by failure to file a divisional the best protection for the invention might be lost.
17. In my judgment, there is no basis upon which the invention in Acme's hands can be said to have been impressed with a constructive trust in favour of Mr French because of the circumstances in which the invention came to be held by Acme. I turn accordingly to the question of a remedial constructive trust.
Remedial constructive trust
18. I start with the observation that Mr French is not without remedy in respect of the invention for which Acme holds the patents. He has the application under section 40 of the 1977 Act which he advances in the current proceedings and which is not sought to be struck out. On the assumption that the Statement of Claim encompasses relief including the declaration that a constructive trust not existing at the date of the issue of the Writ should be imposed by way of relief, is it possible that such a claim should be permitted to go further?
19. The case is put as, in essence, compensation for the breaches of fiduciary duty alleged and also compensation for unjust enrichment arising since Mr French's unfair dismissal. Unjust enrichment is said (paragraph 20 of the Statement of Claim) to have occurred as a result of Mr French's dismissal itself, and also (paragraph 20A) as a consequence of the retention of the patent. It is also sought as a remedy for the general breaches of fiduciary duty alleged to have been committed by Mr Mason. The prayer for relief makes it clear that the only claim is in respect of the patents and in respect of "profits monies and other receivables" received by Mr Mason or Acme as a result of the ownership of the patents from July 1992.
20. I start with the observation that Mr French has obtained compensation for his unfair dismissal, and has also obtained an order under s 459 for his shares to be purchased at a price which does not reflect the fact that they are a minority shareholding. On the pleaded case, Acme were at the time of his dismissal beneficially entitled to the invention the subject of the patents. Mr French has a claim for compensation in relation to the use of the patents by Acme under s 40 of the 1977 Act. Plainly a company owes no fiduciary duties to its directors, and the directors owe no fiduciary duties to the members. Unfair dismissal or dismissal in breach of the contract of employment is not a breach of a fiduciary duty by the employer. What gives rise to the claim in the present case is purely the personal relationship between Mr French and Mr Mason.
21. I am quite satisfied that the claim arising out of the dismissal of Mr French cannot give rise to an imposed proprietary remedy affecting the patent. There is no nexus between the alleged breach and the remedy sought. To stigmatise the dismissal as being in breach of a fiduciary duty is irrelevant. It cannot affect the remedy. So far as the claim in relation to the filing of the divisional in 1992 is concerned, I have already explained why, if Acme were entitled to the invention, the act of filing the divisional cannot be described as a breach of any duty at all. It follows that the claim for a remedial constructive trust must fail.
Jacob J's order
22. Jacob J's order includes an undertaking by Mr French in the following terms:
5. Irrevocably to admit and acknowledge in any proceedings he may bring under section 40 of the Patent [sic] Act 1977 in connection with the grant of Patent numbers GB 2256576B and 2225925B that the circumstances to which the court or comptroller may have regard in determining any award of compensation under section 41 of the Act shall include the fact that the valuation referred to in Paragraph 2 of the Order has been determined on the basis set out in that Paragraph and without regard to any award which might be made to the petitioner under that section.
6. The basis of the valuation referred to is in fact set out in paragraph 3 of the Order:
7. The valuer be directed to value the Petitioner's share by reference to the assets, profitability and future prospects of the Company as at 31 July 1992 and without any discount for the fact that the Petitioner's shareholding is a minority holding ...
8. The question is whether this order precludes Mr French from claiming ownership of the patent. It plainly contemplates that he may make an application under Section 40 at any time: but if he has always been beneficially entitled to the invention he cannot bring himself within section 40 ("...invention belonging to the employer..."). Further, as at 31 July 1992 the company claimed to own the invention and that claim was not challenged. The prospects of the company as at 31 July 1992 therefore included the prospects of the business based on the invention. Plainly a claim that Mr French has always owned the invention and is beneficially entitled to the invention affects the whole basis of the valuation.
23. Mr Arnold submits that this order bars Mr French's claim in three ways, either by way of election, or of estoppel by convention, or by reason of the rule in Henderson v Henderson 3 Hare 100. He says in effect that because the present claim affects the basis of the valuation it should have been decided or recognised in the order.
24. Jacob J's order itself was only drawn after the Writ in the present proceedings was issued. I have been informed by counsel that a constructive trust claim was mentioned before Jacob J, but its basis does not appear to have been disclosed. The s 40 claim, on the other hand, which depends upon the employer owning the patent, was clearly mentioned and provision was made in the order to accommodate it. The subject matter of the constructive trust is only clearly identified in a letter from Mr French's solicitors dated 20 February 1998, although a claim for a declaration of trust, without identifying the subject matter of the trust, was intimated on 26 September 1997, before the hearing of the s 459 petition.
25. A comparison of the Statement of Claim in this action and the s 459 petition shows that so far as the allegation of constructive trust is concerned they traverse substantially the same ground. I am satisfied that they should have been brought on together. Of course they could not have been consolidated: but they could have been heard together on the same evidence, and they were not. The most recent case on the doctrine of Henderson v Henderson is MCC Proceeds Inc. v Lehman Brothers International (unreported: CA 19 January 1998). This case was not cited to me, but I refer to it for the following passage in the judgment of Mummery LJ which reviews the relevant authorities:
‘In Hunter v Chief Constable of the West Midlands Police [1982] AC 529,...at 536...Lord Diplock said, in relation to the doctrine of abuse of process:
"It concerns the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right thinking people. The circumstances in which an abuse of the process can arise is very varied: those which give rise to the instant appeal must surely be unique. It would, in my view, be most unwise if this House were to use this occasion to say anything that might be taken as limiting as fixed categories the kinds of circumstances in which the court has a duty (I disallow the word discretion) to exercise this salutary power."
9. The doctrine of res judicata is explained in a well known passage in the judgment of Sir James Wigram VC in Henderson v Henderson (1843) 3 Hare 100 at 115:
"I believe I state the rule of the court correctly when I say that, where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time."
10. A well known example of a recent application of Henderson v Henderson was in the decision of the Privy Council in Yat Tung Investment Co. Ltd v Dao Heng Bank Ltd [1975] AC 581 at 590 ...where Lord Kilbrandon, having rejected the application of the doctrine of res judicata in the narrower sense, referred to the doctrine in its wider sense, as expounded in Henderson v Henderson (supra). He said:
"The doctrine may be appealed to, so that it becomes an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings."
11. He pointed out that the shutting out of a "subject of litigation" should not be done without a "scrupulous examination of all the circumstances" and added a citation from the judgment of Somervell LJ in Greenhalgh v Mallard [1947] " All ER 255 at 257:
"res judicata for this purpose is not confined to the issues which the court is actually asked to decide, but...it covers issues or facts which are so clearly part of the subject matter of the litigation and so clearly could have been raised that it would be an abuse of the process of the court to allow a new proceeding to be started in respect of them."
12. As Stuart-Smith LJ said in Talbot v Berkshire CC [1994] QB 290 ... at 296D ...
"The rule is thus in two parts. The first relates to those points which were actually decided by the court; this is res judicata in the strict sense. Secondly, those which might have been brought forward at the same time. The second is not a true case of res judicata but rather is founded on the principle of public policy in preventing multiplicity of actions, it being in the public interest that there should be an end to litigation; the court will stay or strike out the subsequent action as an abuse of process..."
In Gleeson v J Wipple & Co Ltd ...[1977] 1 WLR 510 at 515... Sir Robert Megarry VC said, in relation to the doctrine of privity of interest in cases of res judicata
"...having due regard to the subject matter of the dispute, there must be a sufficient identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party." '
26. In the present case the claim is primarily against the company (I shall consider the position of Mr Mason below). Both were necessarily respondents to the s 459 petition. In my judgment it is an important principle that claims are not subdivided as they have been in the present case. Mr French must have been aware that the constructive trust claim would affect the basis of the valuation of the shares in the company, and it must have been obvious that the machinery of Jacob J's order could not be concluded until the constructive trust claim was determined. I believe that it is clear that the claims arising out of Mr Mason's conduct vis-à-vis Mr French could and should have been resolved at the same time, in contrast to the claims arising out of the use by the company of the patented invention, which was recognised as giving rise to separate considerations and to which Mr Mason would not be a party. I would strike out the constructive trust claim on the basis of the doctrine of Henderson v Henderson.
Conclusion
27. In the result, this application succeeds and the proprietary claim to the patents is struck out. Mr Mason must cease to be a party to the action. I shall hear counsel on the appropriate form of order.
