Ultraframe (UK) Ltd v Fielding & Ors

A controlling shareholder or director is not necessarily an employee of the company. Employment under a contract of service depends on all the circumstances. It requires mutual obligations, sufficient contractual control and terms consistent with employment.

A design is commissioned only where a prior contract obliges the designer to create it for money or money’s worth. Nevertheless, a director who uses company assets, information and opportunities to create designs for its business ordinarily holds the resulting rights on trust for the company. Unanimous shareholder assent cannot validate an ultra vires transfer of company assets or an unauthorised return of capital.

Ultraframe claimed ownership of design rights in components of the Quickfit conservatory-roof system through an assignment from the trustee in bankruptcy of the designer, Mr Davies. Laddie J held that the rights belonged to the companies through which Mr Davies had operated because he had created the designs as their employee. The London action was dismissed, and the costs of preliminary issues were reserved to the judge determining the related litigation.

Ultraframe appealed on ownership. The respondents relied alternatively on commissioning and on a trust arising from Mr Davies’s fiduciary position. Related appeals challenged the costs order. The principal questions were whether Mr Davies had created the designs as an employee or pursuant to commissions and, if not, whether he held the design rights on trust for the relevant companies.

1. Disposition. The court unanimously allowed one appeal and refused the two related appeals. Although Laddie J’s conclusions on employment and commissioning could not stand, his conclusion that the relevant companies beneficially owned the design rights was sustained on the alternative ground of trust. The costs cross-appeal was dismissed.

2. Employment. Per Waller LJ, with whom Longmore LJ and Sir William Aldous agreed, the expression “contract of service” in section 215(3) of the Copyright, Designs and Patents Act 1988 bears its ordinary employment-law meaning. The statutory context supplied no clear indication that Parliament intended a special meaning. A controlling shareholding is relevant but not determinative. The court must examine all the circumstances, including whether a genuine contract exists, mutual obligations, remuneration, the contractual framework of control and whether the remaining terms are consistent with employment.

   Mr Davies worked hard for the companies and received weekly payments described as wages. Those facts did not establish that he had undertaken contractual obligations to work particular hours or produce designs. He controlled the companies and chose when to design. The necessary obligation and framework of control were therefore absent.

3. Commission. Section 215(2) required a prior commission for money or money’s worth. Commissioning meant a contract containing mutual obligations made before the design was produced, including an obligation to create the design and a corresponding obligation to pay for it. Regular payments and the fact that the designs benefited the companies did not establish such a contract. Mr Davies had never undertaken in advance to produce the designs.

4. Trust and fiduciary duty. Mr Davies was a director or de facto director who conducted the business through the companies. He used their assets, facilities, information and employees to create designs for their products. In those circumstances he held the resulting design rights on trust for the company through which he was operating when each design was created.

   The Duomatic principle did not permit a contrary inference from Mr Davies’s control of all the shares. Shareholder assent must concern an act within the company’s powers. It could not authorise the gratuitous removal of company property or an unauthorised reduction of capital. Nor was hypothetical willingness to approve enough: a specific act of informed and lawful assent was required.

5. Costs. Per Longmore LJ, a judge determining preliminary issues should normally decide their costs. Laddie J nevertheless acted within his broad discretion by reserving costs. The litigation was exceptionally interconnected, alleged misconduct elsewhere might affect the just order, and the title issue might ultimately have limited significance.

1. Court of Appeal (Civil Division): One appeal was allowed and two related appeals were refused. The judge’s employment and commissioning reasoning was rejected, but the companies’ beneficial ownership was sustained on the alternative ground that the designer held the rights on trust. The order reserving costs was not disturbed.
2. High Court, Chancery Division: Laddie J held that the relevant companies owned the design rights because the designs had been made by Mr Davies as their employee. Ultraframe’s London action was dismissed, and the costs of the preliminary issues were reserved to the judge hearing the related actions. No neutral citation is stated in the judgment.