Fraser & Ors v Oystertec Plc & Ors

For summary judgment, a defendant must show a real, rather than fanciful, prospect of success and must provide the factual basis for any asserted defence. The court may decide a difficult point of law summarily where doing so is likely substantially to reduce the burden of a trial.

An agreement allowing a company to divest itself unilaterally of a substantial asset, central to its business and held out as its property, merely because of insolvency is contrary to public policy and void. A transaction may nevertheless become practically unchallengeable through laches or acquiescence. Equitable relief remains discretionary and may be refused or granted on terms, including compensation.

Minority shareholders and creditors of Easyrad Limited brought a derivative claim concerning a patent which had been assigned by Easyrad to Paul Davidson and subsequently to Oystertec plc. They sought summary judgment establishing that the assignment from Easyrad had been ineffective.

The defendants relied on an insolvency agreement which purported to permit unilateral transfer of the patent when Easyrad became unable to pay its debts. They also raised accord and satisfaction, laches and acquiescence. The central issues were whether the insolvency agreement was void as contrary to public policy, whether the patent fell within its terms, and what relief remained available in equity.

1. Summary judgment standard. Under Civil Procedure Rules 1998, rule 24.2, summary judgment is appropriate where the opposing party has no real prospect of success and there is no other compelling reason for trial. A fanciful or bare legal assertion is insufficient; the opposing party must identify the factual basis of the asserted case. A difficult legal issue may be decided summarily where that is likely to avoid or substantially simplify a longer trial.
2. Void transfer. The insolvency agreement purported to allow Easyrad unilaterally to remove its principal patent asset without warning, valuation machinery or an opportunity for creditors or investors to protect their interests. Applying the principle in Money Markets Ltd v London Stock Exchange [2002] 1 WLR 1150, the court held that such a deprivation provision was contrary to public policy and void. The principle was not confined to insolvency proceedings formally commenced by a winding-up petition.
3. Scope of the agreement. The patent was not transferred to Easyrad for the consideration of £1 required by clause 1. That condition precedent was therefore not satisfied, and the divestiture clause did not operate in any event.
4. Equitable defences and relief. A void transaction may nevertheless become unchallengeable where a claimant stands by and allows the putative transferee or a third party to alter its position. The court considered that the claimants’ conduct in allowing the flotation to proceed could defeat an unqualified proprietary declaration. Laches and acquiescence were not necessarily absolute, however, and the court retained power to refuse a declaration while awarding or requiring adequate compensation.
5. The claimants succeeded on the issue that the Easyrad assignment had not effectively divested Easyrad of the patent. The court refused at that stage to declare that Easyrad owned the patent, pending completion of argument on accord and satisfaction and the remaining aspects of laches and acquiescence.

Not stated in the judgment.