Wright Hassall LLP v Horton Jr & Anor 
In Wright Hassall LLP v Horton Jr & Anor  EWHC 3716 (QB) (22 December 2015) the matter came before HHJ David Cooke who noted that the Defendants main defence was a
“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”.
The Claimant Solicitors were seeking payment from the Defendants of fees in the sum of £12,700 plus interest, amounting to £16,367 and an application to strike out the Defendants defence and counterclaim on the basis of there being no reasonable grounds for defending the claim in accordance with CPR 3.4 or alternatively the counterclaim had no real prospect of success under CPR 24.
Prior to 2004 the First Defendant invented a new concept computer desk aimed at public and educational sectors and, set up a company to promote it in January 2004. In June that year, the company made a UK patent application and the following year, an International patent application. As HHJ Cooke observed the patent application was separate from the ownership of the invention and the Company was allowed to make the application but it was not granted since, at the date of the grant, the applicant had to be the owner of the invention. The UK application ended but the international application continued.
On the 4th December 2006 the company appeared to assign its rights in the application and invention to the Defendants and the First Defendant inventor. On the 27th December 2006 it made an application for a patent in the US and in January 2007 an application for a European patent.
On the 21st March 2007, the First Defendant entered into a further assignment where he appeared to assign rights and applications made in respect of his invention back to the company in order that it could make its own application to obtain a patent in the US.
In July 2008 the Defendants entered into an agreement with investors for a £140,000 loan to be converted to a 25% shareholding in the company with the investors providing £100,000 of further equity funding and the Defendants giving a personal guarantee in respect of the repayment of the loan.
In August 2008 the company entered into a further assignment appearing to assign the rights and applications to a company called CJC Legacy Limited owned by the Defendants or their family which, they contended, the Investors were aware of. The investors did not produce any further equity funding and on the 14th November 2008 refused to convert the loan, insisting the company be put into administration.
On the 27th November 2008 the Second Defendant set up a company to buy the assets of that company. A 1000 shares of £1 each were issued in the company with a proportion being taken up by the family in a trust with the Second Defendant and one of her sons appointed directors.
The Defendants verbally agreed terms with the investors of the new company for them to buy the original company’s assets taking 60% of the shares with the Defendants keeping 40%. In return the Investors agreed that the personal guarantee in respect of the £140,000 loan would be waived.
On the 5th December 2008 administrators were appointed and a sale of the original company’s assets to the new company was prepared. HHJ Cooke noted:
“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.
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.”
HHJ Cooke observed that the counterclaim was brought under three heads:
“ i) The Form 88(2) claim
ii) The intellectual property claim and
iii) Conflict of interest”.
With regard to the Form 88(2) claim the Defendants pleaded that the Claimants failed to advise them “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”
HHJ Cooke observed that the pleaded case within this head had no prospect of success since the advice which the Defendants say the Claimants should have given would have been wrong in law. He continued that, although there were mistakes in law, any alternatives the Defendants could have pleaded would not have led to a real prospect of success. He therefore considered there should be summary judgment for the Claimant in this respect.
With regard to the intellectual property claim it was said that the Defendants were unable to demonstrate that it was “arguable” the intellectual property rights to the desk were owned by them and not the original company they had set up. The assignment by the First Defendant to the original company was invalid as there was no consideration in the deed and the assignment was made only by the First Defendant who could not assign the Second Defendant’s share of the Intellectual Property Rights. HHJ Cooke noted that
“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”
He considered that the
“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”.
He held that this claim did not have a real prospect of success and awarded summary judgment to the Claimant.
With regard to the third head of Conflict of Interest, HHJ Cooke noted that the conflict claim had recently been added by way of amendment and arose from the Claimants, prior to acting for the Defendants, acting for the Landlord of the premises when the Defendants original company took its lease. A Solicitor in the Claimant firm had written to the Landlord concerning the ongoing occupation of the property by the Defendants through its administrators. HHJ Cooke observed that it was unclear precisely what his discussions with them had been but could well have included forfeiture of lease. It was not suggested that he gave advice to them concerning any claim against the Defendants.
HHJ Cooke noted the Claimants, some time after 26th August 2009, were asked to act for the Landlords on a claim against the Defendants under the guarantee but it did not do so. He considered that the matters before him amounted “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”
He concluded that the conflict claim had no real prospect of success and summary judgment be given to the Claimant in this respect.